Mutual Funds

September 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 September 2013.

Global equity markets rallied across the board in September, as the U.S. Federal Reserve decided to maintain its monetary stimulus program, and economic growth in China and Europe showed signs of strengthening. For the month, both the U.S. and international equities markets posted positive returns.

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

In the U.S., stocks advanced to new all-time highs during the month despite investor concerns over the potential government shutdown and the looming political standoff over raising the U.S. debt limit. For the month, the Standard & Poor's 500 Index®, a benchmark for the U.S. equity market, reached an all-time high of 1725 on September 18th and closed out the month with a 3.1 percent total return. Small-cap stocks, as represented by the Russell 2000 Index, and mid-cap stocks, as represented by the Russell MidCap Index, also posted positive returns for the month, gaining 6.4 percent and 4.6 percent, respectively.

Nine of the ten sectors comprising the S&P 500 Index climbed higher for the month, with the more economically sensitive sectors outperforming the more defensive areas of the market. For the month, industrials, consumer discretionary, and materials led the S&P sectors higher, gaining 5.7 percent, 5.4 percent and 4.4 percent, respectively. Dividend-paying sectors continued to be affected by rising interest rates, with the utilities sector posting a 1.1 percent total return, while telecommunication services was the only sector to decline, losing -0.5 percent for the month.

For the longer 1-year time period, small-capitalization stocks led the major stock indices in total returns gaining 30.1 percent, followed by mid- and large-cap stocks posting total returns of 27.9 percent and 19.3 percent respectively. During 2013, all three of the major stock indices have recorded new all-time highs and are securely in positive territory for the year-to-date, 1- and 5- year time periods.

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

Global equity markets rebounded in September after a modest pullback in August. European stocks posted strong gains as the 17-nation euro zone continued to emerge from recession and solidify its economic recovery. A couple of Europe's most economically troubled countries, Spain and Greece, led the developed markets higher, each posting gains of 14.3 percent for the month. For the month, the Morgan Stanley Europe, Australasia, and Far East Index gained 7.4 percent, while emerging markets, as measured by the MSCI Emerging Markets Index, also advanced posting a 6.5 percent total return.

Japanese stocks continued their upward momentum in September despite investor concerns over the decision by the Japanese government to raise the country's sales tax from 5 percent to 8 percent, starting April of 2014. With Japanese national debt close to 245 percent of gross domestic product (GDP), the government has been challenged with trying to incorporate some level of fiscal rehabilitation while continuing to maintain its economic revitalization efforts. Year-to-date, Japan led the developed countries in total returns advancing 24.3 percent. For the longer 1-year time period, developed international markets (excluding the U.S.) have advanced 16.1 percent, while emerging international markets have gained 1.0 percent for the period.

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

U.S. fixed income markets moved back into positive territory supported in part by a surprise move by the U.S. Federal Reserve to maintain its monetary stimulus program. For the month, U.S. investment-grade bonds, as measured by the Barclays U.S. Aggregate Bond Index, advanced 1.0 percent. Over the longer 1-and 5-year time periods, the Barclays U.S. Aggregate Bond Index has posted annualized total returns of -2.5 percent and 4.9 percent, respectively.

The U.S. municipal bond market ended September in positive territory after experiencing four consecutive months of negative returns. For the month, the Barclays Municipal Bond Index® gained 2.2 percent, and partially recovered from its previous months' losses to end the quarter down -0.2 percent. Over the longer 1- and 5-year time periods, municipal bonds have posted annualized total returns of -2.2 percent and 6.0 percent, respectively.

Interest rates declined in September as investors sought out the relative safety of U.S. Treasuries, driven in part by the anticipated government shutdown and the looming debt ceiling deadline. At month end, the yield on the benchmark 10-year Treasury note closed at 2.64 percent down 0.14 percent from August month ending 2.78 percent. Meanwhile, the 30 Treasury Bond closed the month at 3.69 percent compared to 3.70 percent at August month end.

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.

In August of 2011, Congress failed to reach an agreement to raise the debt limit until the last moment, and stocks dropped by more than 15 percent. How will the financial markets respond if agreements can't be reached by this year's October 17th deadline? Tune in next month to find out.

Securities through registered representatives of State Farm VP Management Corp., One State Farm Plaza, Bloomington, Illinois 61710-0001, 800-447-4930.

This recap has been prepared by State Farm VP Management Corp. for informational purposes. The information contained herein has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Any opinions discussed herein reflect our judgment as of the date of publication and are subject to change without notice. This material should not be considered a recommendation to purchase or sell any security.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

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AP2013/10/1912

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