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Second Quarter 2015 Financial Market Review

U.S. economic growth improved in the second quarter of 2015, but, in contrast to the strong first quarter showing, most financial investments generated meager to negative returns. Concerns about the impact of a Federal Reserve rate hike, the slowing growth in China and the worsening situation in Greece led investors to take a more guarded approach, despite the improved U.S. economic data.

Longer-term interest rates, specifically 10-year government debt yields, rose across the world as signs of stronger growth and somewhat higher consumer prices led global investors to sell longer-duration bonds. Oil prices climbed higher and the U.S. dollar fell against other major currencies on signs of improving growth in Europe. This combination led investors to adopt a better outlook for U.S. corporate earnings in the second half of the year, while it also increased confidence in the sustainability of the economic expansion.

The Federal Reserve remained on course to begin normalizing monetary policy by raising the Fed Funds rate at least once later this year. The second quarter rebound in U.S. economic growth, which was evidenced by better consumer spending, stronger housing activity and continued strong employment gains, is consistent with this expectation for higher short-term interest rates.

While U.S. stocks were essentially flat for the quarter, foreign-developed market stocks generated a small gain, despite the fact that most equity markets suffered in June as the Greek debt crisis came to a head. European markets traded sideways in the second quarter as investors adopted a “show me” mentality regarding the real impact of the European Central Bank’s aggressive new stimulus policy, before suffering losses as the Greek crisis unfolded. The Chinese market, which had been on a tear, experienced a material decline late in the quarter as speculators sold positions; meanwhile, the broad emerging markets index produced a small gain.

Fixed income, especially long duration, performed poorly in the quarter as long-term interest rates rose. Commodities, other than oil, generated negligible returns at best as emerging market growth remained questionable and inflation stayed calm. U.S. Real Estate Investment Trusts suffered double-digit losses as the positive impact of low interest rates dissipated.

For the remainder of the year, we anticipate somewhat higher short- and long-term interest rates, rising volatility and the potential for greater foreign turmoil in markets such as Greece and China. We expect the U.S. economy to continue to rebound from the weak first quarter and believe U.S. and global equities still offer a relatively attractive risk/return trade-off for long-term investors.

It should be noted, however, that the level of risk in the financial markets has risen and investors should be prepared for more instability than we’ve seen in the recent past. Yet, we believe investors can successfully manage this volatility while still meeting their goals through prudent diversification and a patient, long-term approach.

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.