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April 2013 Recap

Hello, and welcome to the State Farm market recap audio broadcast. Each month, we offer a perspective on recent events impacting the financial markets in the U.S. and abroad.

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This is the recap for the month of April 2013.

Equity markets gained modest ground in April, supported by on-going stimulus programs and a strong start to the corporate earnings season. Most major markets advanced despite signs of a slowing global economy.

Now let's first review the U.S. equities markets.

U.S. equity markets moved mostly higher in April, with only small-cap stocks showing signs of weakness. For the month, the S&P 500 Index set a new all-time high on the last trading day of the month and recorded its sixth consecutive month of gains rising 1.9 percent. Mid-cap stocks also advanced for the month gaining 1.3 percent while small-caps posted a negative return of 0.4%. Despite signs of sluggish growth in the real economy, the U.S. equity markets continue to maintain positive momentum. Year-to-date all of the major U.S. indices are in double-digit territory led by mid-cap stocks posting a total return of 14.4 percent, followed by large-and small-cap stocks posting returns of 12.7 and 12.0 percent, respectively.

For the month, eight of the ten sectors within the S&P 500 advanced, led by gains in telecommunications and utilities. So far in 2013, the sectors leading gains in the U.S. equity markets are the more stable defensive sectors. S&P calculates that the three least volatile sectors over the past three years have been consumer staples, utilities and health care. The top three performers' year-to-date in 2013 have been health care, utilities and consumer staples, in that order. On the other end of the spectrum, the two most volatile sectors over the past three years, materials and energy are the worst and third-worst, respectively, in year-to-date sector performance.

Let's now turn our attention to the foreign equities markets.

Foreign equity markets advanced in April amid signs of progress with the European region's long-running sovereign debt crisis. Developed markets outpaced emerging for the month despite the euro zone's deepening recession and record-high unemployment. For the month, the Morgan Stanley Capital International Europe, Australasia, and Far East Index of developed countries gained 5.2 percent and advanced its year-to-date total return to 10.6 percent. Meanwhile, the MSCI Emerging Markets Index posted a slight monthly gain of 0.8 percent but remains in negative territory year-to-date down 1.0 percent.

Japanese stocks posted strong gains for the month advancing 8.8 percent in U.S. dollar terms, as the Bank of Japan announced plans for aggressive quantitative easing, including a pledge to double the monetary base over the next two years to achieve a 2 percent inflation target by 2015. In addition, Japanese export companies continue to benefit from a declining yen, the Japanese currency, which has declined 11 percent against the U.S. dollar the first four months of the year.

Let's now switch our focus to the U.S. fixed income markets.

In the U.S. fixed income markets, long-term government bonds experienced modest returns as the Federal Reserve announced that it would maintain its program of keeping short-term interest rates at record lows until the unemployment rate falls to 6.5 percent and inflation begins to accelerate. For the month, the Barclays U.S. Aggregate Bond Index posted a 1.0 percent total return. Over the longer 1-and 5-year time periods, bonds, as represented by the Barclays U.S. Aggregate Bond Index, have posted total returns of 3.7 percent and 5.7 percent, respectively.

U.S. municipal bonds held on to positive gains in April, overcoming mutual fund outflows and inconsistent new issue supply. For the month, the Barclays Municipal Bond Index gained 1.1 percent. Over the longer 1- and 5-year time periods, municipal bonds have posted total returns of 5.2 percent and 6.1 percent, respectively.

Treasuries rallied pushing yields lower for the month with the benchmark 10-Year Treasury note touching a year-to-date low of 1.70 percent. The 30-Year Treasury Bond dropped 22 basis points to close-out the month at 2.88 percent. A basis point is 1/100th of a percent.

With that, we will conclude this broadcast. Thank you again for listening to the State Farm Market Recap. Please join us again next month for the latest market review.

Driven partially by a strong start to the corporate earnings season, the S&P 500 Index recently surpassed the 1,600 mark. During the summer months, will the financial markets experience their typical mid-year slowdown or continue on their upward trend?

Risk Disclosures

Securities issued by State Farm VP Management Corp. One State Farm Plaza, Bloomington, Illinois 61710-0001. For more information, call 800-447-4930.

This recap has been prepared by State Farm VP Management Corp. for informational purposes and should not be considered a recommendation to buy or sell any security. Any opinions discussed herein reflect our judgment as of the date of publication and are subject to change.

MSCI Emerging Markets Index – A capitalization-weighted index of stocks from 26 emerging markets that only includes issues that may be traded by foreign investors. The reported returns reflect equities priced in US dollars and do not include the effects of reinvested dividends. Consists of equities from emerging markets in Brazil, Chile, Columbia, Mexico, Peru, Czech Republic, Egypt, Hungary, Morocco, Poland, Russia, South Africa, Turkey, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.

AP2013/11/2180

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