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March 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 March 2013.

Developed country equity markets continued to gain momentum in March as the month marked the fourth anniversary of the global equity market bottom which occurred on March 9, 2009. Since the lows of the Great Recession, the U.S. stock market has recouped its losses and is now hovering at historical highs.

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

In the U.S., stocks recorded a fifth consecutive month of gains as two of the main indices of the U.S. stock market reached new all-time highs. For the month, the Standard & Poor's 500 Index advanced 3.8% and on the last trading day of the month closed at 1569.19 surpassing the previous record high of 1565.15 set on October 9, 2007. In addition, the blue-chip Dow Jones Industrial Average (DJIA), which tracks thirty large industrial stocks, also broke its all-time high in March and continued to set a number of records on several days during the month.

For the month, small-cap stocks led the major stock indices higher posting a total return of 4.6 percent followed by mid- and large-cap stocks which returned 4.3 percent and 3.8 percent, respectively. Closing out the first quarter of 2013, mid-cap stocks lead the U.S. equities markets in year-to-date total returns gaining 13.0 percent, followed by small-cap and large-cap stocks which posted returns of 12.4 and 10.6 percent, for the period.

All of the S&P sectors ended the month in positive territory as data from retail sales, employment, and housing showed the U.S. economy continues to gain momentum. The more defensive sectors, Health Care, Utilities, and Consumer Discretionary were among the strongest performers for the month, posting price returns of 6.2, 5.1 and 4.8 percent, respectively. Energy stocks, which were hurt by rising prices for U.S. crude oil and gasoline, lagged the other sectors for the month posting a 1.9 percent positive total return. Year-to-date, stocks in the health care industry have benefited from the anticipated impacts of the new government health laws and lead the S&P sectors advancing 15.2 percent. The last time health-care stocks led the U.S equities markets for the first quarter of a new year was in 1998 when the industry surged 42 percent, the third-largest gain on record.

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

Foreign equity markets posted mixed results in March with the majority of developed countries advancing while emerging markets retreated. During the month, much of the focus was on the financial banking crisis occurring in Cyprus and although Cyprus is a relatively small economy, there was speculation that the crisis could quickly spread to other troubled euro-zone countries. Emerging markets suffered from the slowdown in Europe and other country specific issues, including wage pressure and weak manufacturing in China, inflation in Brazil, and concerns about rising natural gas prices in Russia. For the month, the Morgan Stanley Capital International Europe, Australasia, and Far East Index of developed countries gained 1.0 percent while the MSCI Emerging Markets Index ended the month in negative territory falling -1.7 percent.

Japanese stocks posted positive gains in March advancing 4.9 percent in U.S. dollar terms, as the world's third-largest economy showed signs of stabilizing. Over recent months the Japanese currency, yen, has weakened approximately 20 percent against the U.S. dollar which has helped boost the country's exports and stimulate the Japanese stock market. For the quarter ending in March, the Nikkei 225 Stock Average advanced 19 percent and extended the 17 percent previous quarter gain recording its best back-to-back quarterly performance since 1972.

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 shifted into riskier assets. For the month, the Barclays U.S. Aggregate Bond Index posted a 0.1 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 3.8 percent and 5.7 percent, respectively.

U.S. municipal bonds ended March with a slight decline as demand, represented by mutual fund cash flows, began to decline. For the month, the Barclays Municipal Bond Index fell -0.4 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.

The U.S. Treasury yield curve remained mostly unchanged for the month with yields on short-term issues declining slightly more than intermediate and longer-term issues. For the month, the yield on the benchmark 10-Year Treasury note closed at 1.87 percent down from February's 1.89 percent. The 30-YearTreasury Bond ended the month unchanged from the previous month close of 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.

The U.S. equity market is off to a strong start in 2013, with the DJIA and S&P 500 reaching new all-time highs in March. Will the upcoming corporate earnings season push the equity market even higher during the second quarter of the year?

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.

AP2013/12/2233

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