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Second Quarter 2014 Financial Market Review

In the second quarter, the U.S. economy rebounded from the weather-related slowdown that began the year, and in doing so, boosted investment returns throughout the capital markets. Although the current economic expansion is producing growth well below historical averages, corporate earnings remain strong and investors remain confident that the Federal Reserve will be quick to the rescue with continued pro-growth monetary policies when and if necessary.

For the quarter, all major asset classes moved noticeably higher and well-balanced portfolios continued to produce solid gains. The quarter was led by the broad category of real assets as the securities of commodity producers and Real Estate Investment Trusts posted high single-digit returns. Year-to-date, these two real asset segments are up 10.49% and 18.14%, respectively. Also, Treasury Inflation Protected Securities, another key real asset strategy was up 3.81% for the quarter. It was also a good period for stocks, both in the U.S. and abroad. U.S. stocks returned 5.23% and closed near all-time highs. Finally, interest rates fell for the second consecutive quarter, resulting in a return of 2.04% for bond investments.

As we move into the second half of the year, the rebound in economic growth in the second quarter serves as a testimony to the resilience of the U.S. economy. While the rebound is an encouragement to investors, there is skepticism entering the minds of many institutional investors and well-respected economists that are looking further down the road. With interest rates remaining low and labor markets nearing full employment, there are growing concerns that the Federal Reserve is overstaying its aggressive monetary policies and pro-growth strategies. If this is the case, the Fed, after years of running monetary policy at full throttle, will be increasingly called upon to walk a proverbial tightrope that may very well introduce more volatility into the investment markets. The Fed will need to properly balance their economic growth objective, which is the remedy for secular deleveraging, with the risk of overstimulating the economy which may lead to inflationary pressures and asset bubbles.

Lastly, with stock market valuations near historical averages and interest rates near historical lows, we continue to expect capital market returns in the coming years will most likely reflect the slow economic growth pattern predicted of world economies. This reinforces the need for investors to maintain broad diversification to combat periods of rising volatility, maintain a broad opportunity set for investment returns, and apply a consistent and robust savings plan to combat periods of low returns. All three are proven principles that will help you face changing market environments with confidence and help you meet your investment objectives over time.

You should carefully consider the investment objectives, risks, charges and expenses of GuideStone Funds before investing. For a copy of the prospectus with this and other information about the funds, please call 1-888-98-GUIDE (1-888-984-8433) or download a prospectus. You should read the prospectus carefully before investing.

S&P 500® is a trademark of The McGraw-Hill Companies and has been licensed for use by GuideStone Funds. The Equity Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the Equity Index Fund.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.

GuideStone Capital Management, a controlled affiliate of GuideStone Financial Resources, serves as the investment adviser to GuideStone Funds.

You should carefully consider the investment objectives, risks, charges and expenses of the GuideStone Funds before investing. A prospectus with this and other information about the Funds may be obtained by calling 1-888-GS-FUNDS (1-888-473-8637) or downloading one. It should be read carefully before investing.
GuideStone Funds shares are distributed by Foreside Funds Distributors LLC, not an advisor affiliate. GuideStone Capital Management, LLC, an affiliate of GuideStone Financial Resources, provides investment advisory services for the funds.