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Fourth Quarter 2014 Equity Market Review

U.S. equity markets ended the year in positive territory as primary stock indices posted strong fourth quarter and calendar year returns. Equity markets experienced increased volatility throughout the year but remained resilient amidst an accelerating domestic economy, improving labor market, increasing consumer confidence and increased disposable income due to falling energy prices. This environment provided a supportive backdrop for U.S. stocks as the S&P 500® Index posted a fourth quarter return of 4.93%, bringing the return to 13.69% for the full year of 2014. The broader U.S. market, as measured by the Russell 3000® Index, posted returns of 5.24% for the quarter and 12.56% for calendar year 2014.

From a sector perspective, performance was biased to the upside as eight of nine sectors within the Russell 3000® Index advanced during the quarter. The best performance came from the consumer discretionary, health care and financial services sectors. The energy sector was the weakest performer for the quarter as a result of the abrupt drop in oil prices. The energy sector was extremely volatile in 2014 as it performed well in the first half of the year, but finished the year in negative territory.

Companies with lower capitalization, lower quality and lower beta generally performed well during the quarter. In terms of equity market capitalization, small-cap companies outperformed their large-cap counterparts as the Russell 2000® Index posted a fourth quarter return of 9.73%, while the Russell 1000® Index advanced 4.88%. However, over the calendar year period, large-cap stocks outperformed small-cap stocks by a wide margin. From a style perspective, value-oriented stocks slightly outperformed growth-oriented stocks in large- and mid-cap space but underperformed growth in the small-cap segment during the quarter. In the large capitalization segment, the Russell 1000® Value Index and Russell 1000® Growth Index had quarterly returns of 4.98% and 4.78%, respectively. In the small capitalization segment, the Russell 2000® Growth Index posted a fourth quarter return of 10.06% and outpaced the Russell 2000® Value Index by 66 basis points.

Developed non-U.S. markets struggled relative to their U.S. counterparts and were negatively impacted by very modest economic growth and an appreciating U.S. dollar against most currencies. The MSCI-EAFE Index (Net), a measure of international developed country returns, posted a fourth quarter return of -3.57%, bringing the one-year return to -4.91%. From a country perspective, Portugal, Norway and Italy in the European region posted the worst performance, while Hong, Kong, Ireland and New Zealand were among the few positive performing countries for the quarter. From a sector perspective, the fall in oil prices had a major impact on energy and the sector declined more than 19% for the quarter. With the exception of consumer discretionary, all other sectors declined for the quarter.

Emerging markets stocks underperformed developed markets during the quarter and were also impacted by dollar strength during the period as the MSCI Emerging Markets Index (Net) posted a quarterly return of -4.50%, bringing the one-year performance to -2.19%. The worst performing markets included countries such as Russia, Greece and Columbia. Turkey, China and South Africa were among the few positive performing countries for the quarter. From a sector perspective, other than technology and financials, all groups posted negative returns during the fourth quarter.

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. Foreside is not a registered investment adviser and does not provide investment advice.