By Martin E. Landry, CFA, CFP®, CIMA®, Senior Investment Analyst
Continued gridlock in the credit markets, fears of an impeding recession and dire straits for a few financial companies led to one of the most unstable and downbeat quarters in recent memory for global equity markets. Uncertainty over the extent of damage done to the global economy from the credit and liquidity crisis was rapidly priced into the stock and bond markets. Most of 2007’s stock gains were erased during one of the most volatile periods in years. The S&P 500® Index moved more than 1% on over half of the trading days in the first quarter.
Stocks prices were driven south by unprecedented turmoil in the bond markets that climaxed with the dramatic rescue of investment bank Bear Stearns and forced unparalleled actions from the Federal Reserve in order to provide liquidity to the financial system.
The broad U.S equity market as measured by the Russell 3000® Index fell 9.52% for the first quarter while the large-cap oriented S&P 500® Index plunged 9.44%. The last five months of losses on the S&P 500® marked the longest losing streak since October 1990. International stocks suffered in sympathy. The MSCI® ACWI Ex-U.S. Index, representing both developed and emerging international markets, slumped 9.15% for the first quarter.
Although it is a small comfort to investors tallying their losses for the first quarter, the Dow Jones Industrials Average and S&P 500 have not yet reached the 20% peak-to-trough decline that is the traditional definition of a bear market.
The performance divergence between growth and value stocks tightened during the quarter. The large-cap oriented Russell 1000® Growth Index fell 10.18% for the quarter, and the Russell 1000® Value Index slipped 8.72%. Stocks in the technology sectors contributed the most to the Growth Index’s fall while stocks in the financial services sector burdened the Value Index.
The small-cap oriented Russell 2000® Index tumbled 9.90% for the quarter, mostly due to slumping prices for stocks within the technology, health care and consumer discretionary sectors. For the quarter, growth stocks retraced deeper than value stocks in the small-cap space.
The reverberations of the current crisis left no region of the world untouched. The malaise in foreign markets is in stark contrast with the past five years, when these shares trounced their U.S. counterparts. Emerging market stocks, as measured by the MSCI® Emerging Markets Index, experienced a distinct sell-off in January only to be followed by a rebound in February. For the quarter, this index fell 10.99%. Some of last year’s high-flying markets, like India and China, have seen this year’s worst drops, with shares down more than 20%. Developed international stocks, as represented by the MSCI® EAFE Index, fell 8.91% during the quarter. The gloom has been evident in Europe as well with major indexes in the United Kingdom, Germany and France each falling more than 10%. Even so, a collapsing U.S. dollar softened the blow.
Investments in public real estate companies, including REITS, which were sold extensively in 2007, rebounded during March. The Dow Jones Wilshire Real Estate Securities Index rose 2.12% for the quarter. This index remains down almost 19% over the last twelve months.
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 Funds shares are distributed by PFPC Distributors, Inc., a registered broker-dealer and underwriter of the funds, 760 Moore Road, King of Prussia, PA 19406. GuideStone Capital Management, a controlled affiliate of GuideStone Financial Resources, serves as the investment adviser to GuideStone Funds.