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Third Quarter 2014 Equity Market Review

During the third quarter of 2014, global equity markets registered mixed results as investors weighed positive indications of strength in the U.S. economy against geopolitical unrest in Russia/Ukraine and the Middle East, and uncertainty over Federal Reserve policy relating to the timing of potential interest rate hikes. In the U. S., markets experienced increased volatility as stocks suffered declines in July, rose strongly in August and then declined again in September. The S&P 500® Index posted an overall third quarter return of 1.13%, bringing the YTD return to 8.34%. The broader U.S. market, as measured by the Russell 3000® Index, posted returns of 0.01% for the quarter and 6.95% for the YTD period.

From a sector perspective, only four of the nine sectors within the Russell 3000® Index advanced during the third quarter. While overall performance was flat, returns were varied as the top- and bottom-performing sectors were separated by over 13%. Healthcare and technology were the best performing sectors during the period, while the energy sector was clearly the weakest performer as a result of falling commodity prices.

Companies with higher capitalization, higher quality and lower P/E characteristics generally performed well during the quarter. In terms of equity market capitalization, large-cap indices posted only a modest quarterly increase but outperformed their small-cap counterparts by a wide margin as the Russell 1000® Index posted a third quarter return of 0.65%, while the Russell 2000® Index suffered a decline of -7.36%. Style differentiation was evident in the quarter as growth oriented stocks generally outpaced value-oriented stocks. In the large capitalization segment, the Russell 1000® Growth Index and Russell 1000® Value Index had quarterly returns of 1.49% and -0.19%, respectively. In the small capitalization segment, the Russell 2000® Growth Index and Russell 2000® Value Index posted quarterly returns of -6.13% and -8.58%, respectively.

Developed non-U.S. markets declined and were impacted by the U.S. dollar which strengthened against most currencies during the quarter. The MSCI-EAFE Index (Net), a measure of international developed country returns, posted a third-quarter return of -5.88%, bringing the year-to-date return to -1.38%.

Among the major equity markets, Germany was down over 11% due to concerns over the potential impact of Russian sanctions on their export-led economy, while Japan advanced 5.8% in local terms only to have yen weakness result in a decline of -2.3%. From a developed market sector perspective, the economically sensitive portions of the market (such as consumer discretionary, energy, industrials, and materials) underperformed, while the more defensive healthcare sector was the only positive performer for the period.

Currencies were generally weaker in emerging markets as well. Emerging markets outperformed developed markets (excluding the U.S.) during the quarter as the MSCI Emerging Markets Index (Net) posted a quarterly return of -3.50%, bringing the year-to-date performance to 2.43%. The European region experienced the largest declines for the quarter as countries such as Turkey, Greece, Russia and Hungary were among the worst performers, while the UAE, Egypt and Qatar in the Middle East region were among the few strong performers for the period. From an emerging market sector perspective, healthcare and telecommunication services were the only positive performers for the third quarter.


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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.