Mutual Funds

October 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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Each month, we offer a perspective on recent events impacting the financial markets in the U.S. and abroad. This is the recap for the month of October 2013.

Global equity markets rallied the last three weeks in October as investors embraced the Federal Reserve's stimulus efforts while largely ignoring the 16-day U.S. government shutdown and potential debt ceiling crisis. For the month, U.S., developed, and emerging markets recorded positive gains.

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

In the U.S., stocks largely shrugged off the government shutdown and both the S&P 500 Index® and the Dow Jones Industrial Average reached new highs toward the end of the month. Key corporate earnings reports also helped lift equity prices higher for the month and by month end the S&P 500 Index recorded a 4.6 percent total return. Small and midcap stocks also moved higher for the month, posting total returns of 3.5 percent and 2.5 percent, respectively. Over the longer year-to-date time period, the Standard & Poor's 500 Index, a benchmark for the U.S. equity market, has advanced eight of the ten months and recorded a total return of 25.3 percent. For the same year-to-date time period, small and midcap stocks are securely in positive territory posting gains of 30.9 percent and 28.7 percent, respectively.

For the month, all ten of the S&P sectors advanced led by telecommunication services and consumer staples which posted total returns of 8.5 percent and 6.4 percent, respectively. Financials lagged for the month with a 3.3 percent gain. Year-to-date through October, 448 of the S&P issues are up, 50 down, and 2 unchanged, which is close to an annual record from 1980 when the data began. Year-to-date, consumer discretionary led the S&P 500 sectors in total returns supported by increased consumer spending in credit-sensitive categories such as automobiles and housing. For example, automobile sales grew 8.6 percent year-over-year to 16 million units on an annualized basis as of August 31, 2013, the highest sales level since 2007. In addition, existing home sales are 13.2 percent higher through August 2013 compared to the same period in 2012.

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

Global equity markets completed their largest back-to-back monthly gains in almost two years as U.S. lawmakers avoided a debt default and investors reacted to news the Federal Reserve would maintain its economic stimulus. For the month, the Morgan Stanley Europe, Australasia, and Far East Index gained 3.4 percent, while emerging markets, as measured by the MSCI Emerging Markets Index, also advanced posting a 4.9 percent total return. Although emerging markets stocks generated good gains for the month, they have struggled year-to-date due to concerns about slowing global growth, rising interest rates across developed markets, political unrest, and currency weakness.

Japanese stocks finished flat for the month as investors weighed improved economic data against the backdrop of the pending sales tax increase scheduled for next April. Economic data on the whole supported a slow but moderate recovery with industrial production and consumer confidence on the rise. In addition, household spending in September rose by nearly 4 percent from August, the largest monthly increase in Japan in six months. Year-to-date, the MSCI Japan Index is among the leaders of the developed markets posting a 24.3 percent total return.

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

In the U.S. fixed income markets, bonds advanced as the U.S. government shutdown and ongoing Federal Reserve asset purchases supported demand for fixed income securities. For the month, U.S. investment-grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, gained 0.8 percent and improved its year-to-date decline to -1.1 percent. Over the longer 5-year time period, the Barclays U.S. Aggregate Bond Index has posted an annualized total return of 6.1 percent.

Over the longer 5-year time period, municipal bonds have posted annualized total return of 6.4 percent.

Yields dropped across the U.S. Treasury yield curve for the month with yields on intermediate to longer-term issues falling more than short-term. At month end, the yield on the benchmark 10-year Treasury note, used in determining mortgage rates and other consumer loans, closed at 2.57 percent down 7 basis points from September's month ending 2.64 percent. Meanwhile, the 30 Treasury Bond closed the month at 3.63 percent down 6 basis points from Septembers 3.69 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 last time the S&P 500 Index recorded larger gains than we have seen in the first ten months of this year was in 1997 when stocks finished the year with a 33.4 percent total return. Tune in next month to check current developments.

Securities Issued by State Farm VP Management Corp. For more information, call 1-800-447-4930.

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 float-adjusted market capitalization index designed to measure equity market performance in global emerging markets.

The MSCI Japan Index is designed to measure the performance of the large and mid-cap segments of the Japan market.

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AP2013/11/2033

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