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January 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 January 2013.

Equity markets started the New Year with solid gains as investors reacted to U.S. fiscal reform progress, a strong start to the corporate earnings season, and continued signs of improvement in the European banking system. In January, the S&P 500 Index® finished the month with a 5.2 percent gain, its best start to a year since 1997.

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

In the U.S., stocks touched a five-year high in January lifted by strong earnings news and investor relief over the agreement made on fiscal reform issues. Mid-cap stocks led the domestic equity markets higher for the month advancing 6.8 percent followed by small-cap stocks and large-cap stocks which posted gains of 6.3 percent and 5.2 percent, respectively.

The U.S. earnings season got off to a solid start in January with several companies reporting better-than-expected results. General Electric, the nation's largest industrial company and often considered a bellwether for the U.S. economy, beat analyst expectations reinforcing what could be viewed as positive growth momentum in the real economy. Additional economic reports released during the month continued to support a slow but gradually improving economy, especially in the auto and home markets. Housing starts reached 945,000 (annualized), in December, the highest level since 2008 and automakers reported double-digit gains in January up from the same period in 2012.

For the month, all ten of the S&P 500 sectors turned in positive results led by energy and health care advancing 7.6 percent and 7.3 percent, respectively. Information technology performed the worst for the month as it gained 1.3 percent. The sector was pulled down by Apple Incorporated's 14.6 percent decline, the worst performing issue in the S&P 500 for the month.

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

Global equity markets continued their gaining trends of 2012 as investors regained confidence and moved back into stocks. The last-minute policy fiscal deal in the U.S. and signs of continued improvement with the European sovereign debt crisis sent the markets higher for the month. In January, the Morgan Stanley Capital International Europe, Australasia, and Far East Index of developed countries advanced 5.3 percent while the MSCI Emerging Markets Index also advanced posting a 1.4 percent total return. From a currency perspective, the euro gained 2 percent against the U.S. dollar, its best gain since November 2011.

Japanese stocks posted solid gains in January advancing 3.7 percent in U.S. dollar terms, as the Bank of Japan announced a new open-ended stimulus program and doubled the nation's inflation target rate to 2 percent. The policy news helped contribute to a 5 percent weakening of the yen against the U.S. dollar, which advanced the shares of major exporters including Japanese automakers.

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 declined for the month as a rising stock market and a partial agreement by U.S. lawmakers on fiscal reform issues reduced the demand for safe-haven assets. For the month, the Barclays U.S. Aggregate Bond Index posted a -0.7 percent total return while high yield bonds, as represented by the Barclays High Yield Index, gained 1.3 percent. Over the longer 1-and 5-year time periods, the Barclays U.S. Aggregate Bond Index has posted total returns of 2.6 percent and 5.4 percent, respectively.

Municipal bonds moved back into positive territory in January with the Barclays Municipal Bond Index posting a 0.4 percent gain. Over the longer 1- and 5-year time periods, municipal bonds have posted positive returns of 4.8 percent and 5.7 percent, respectively.

The U.S. Treasury yield curve moved upward in January as yields on intermediate and longer-term issues increased more than shorter-term issues. For the month, the yield on the benchmark 10-Year Treasury note closed at 2.02 percent up from December's 1.78 percent while the yield on the 30-YearTreasury Bond ended the month at 3.17 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.

Automatic government spending cuts will take effect on March 1 if members of Congress can't agree on a longer-term deficit reduction plan. Will the recovery pace of the U.S. economy stall if Congress can't put together a full budget by the March 1 deadline?

Risk Disclosures

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.

AP2013/11/2025

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