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February 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 February 2013.

Equity markets posted mixed results in February with U.S. stocks holding on to small gains while international stocks posted modest losses. For the month, the Standard & Poor's 500 Index® gained 1.4 percent and increased its year-to-date total return to 6.6 percent.

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

In the U.S., stocks got off to a solid start in February with the Dow Jones Industrial Average continuing its streak of three-consecutive monthly gains and touched the 14,000 level for the first time in more than five years. The last time the Dow reached 14,000 was October of 2007 and during that same month hit its all-time high closing on October 9th at 14,164.53.

For the month, gains were spread out fairly evenly across the U.S. equities markets with large- and mid-cap stocks posting a 1.4 percent total return followed by small-cap stocks which returned 1.1 percent, respectively. Year-to-date, mid-cap stocks lead the equities markets in total returns followed by small-cap stocks and large-cap stocks, respectively. For the 1-year time period ending in February, all of the U.S. equities markets have posted double-digit returns led by mid-cap stocks posting a 15.0 percent total return.

Most sectors within the S&P 500 ended the month higher led by Consumer Staples posting a 3.1 percent return and advancing its year-to-date leading sector performance to 8.9 percent. Telecommunication Services and Industrials rounded out the top three posting returns of 2.6 percent and 2.1 percent, respectively. Stocks in the Materials sectors lagged for the month causing the sector to end in negative territory posting a negative 1.7 percent return.

On the U.S. economic front, the Gross Domestic Product, or GDP, estimate for the fourth quarter of 2012 was revised upward by 0.1 percent marking the fourteenth consecutive quarter of economic expansion. Reports of strong auto sales and positive news on the continued housing recovery also helped the overall economy gain momentum during the month.

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

Global equity markets lost ground in February after posting strong gains in 2012 and a fast start to 2013. Most of the developed European markets ended on the downside for the month following elections in Italy that surfaced renewed concerns about the regions sovereign debt crisis. For the month, Europe's three largest economies, Germany, France, and Italy, all lost ground declining 3.9 percent, 3.4 percent, and 12.6 percent, respectively. Overall, the broader Morgan Stanley Capital International Europe, Australasia, and Far East Index of developed countries declined 1.0 percent while the MSCI Emerging Markets Index also ended the month in negative territory declining 1.3 percent. In other parts of Europe, the United Kingdom's credit rating downgrade also weighed on market sentiment. The credit rating agency Moody's, lowered the nations triple-A rating one notch to Aa1, citing high debt levels and weak economic growth.

In February, Japanese stocks posted positive gains advancing 2.7 percent in U.S. dollar terms, as Japanese exporters benefited from a falling yen that hit a 33-month low against the U.S. dollar. During the month, the Nikkei, the leading index of Japanese stocks, hit a 53-month high of 11,662.52, a level not seen since late September 2008.

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

In the U.S. fixed income markets, long-term government bond prices held on to a slight increase for the month as investors demonstrated a "risk-on risk-off" behavior over the looming federal budget cuts. For the month, the Barclays U.S. Aggregate Bond Index posted a 0.5 percent total return. Corporate bonds also moved upward for the month as investors searched for additional yield in investment-grade securities. 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 3.1 percent and 5.5 percent, respectively.

U.S. municipal bonds ended February mostly unchanged with the Barclays Municipal Bond Index posting a 0.3 percent gain. Over the longer 1- and 5-year time periods, municipal bonds have posted total returns of 5.0 percent and 6.8 percent, respectively.

The U.S. Treasury yield curve flattened in February as yields on intermediate and longer-term issues decreased more substantially than shorter-term issues. For the month, the yield on the benchmark 10-Year Treasury note closed at 1.89 percent down from January's 2.02 percent while the yield on the 30-YearTreasury Bond ended the month at 3.10 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.

Recently, strong auto sales and a steady housing recovery are spurring hiring and economic growth in the United States. If the U.S. economy continues to show signs of a healthy recovery will the financial markets follow with positive returns?

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Securities Issued by State Farm VP Management Corp. 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.

The MSCI Emerging Markets Index is a capitalization-weighted index of stocks from 26 emerging markets that only includes issues that may be traded by foreign investors.

Investing involves risk, including potential for loss.

AP2013/11/2009

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