By Martin E. Landry, CFA, CFP®, CIMA®, CIPM Senior Investment Analyst

During the period, stocks remained under pressure due to continued evidence of a globally synchronized recession. The macroeconomic environment has been challenged by factors including severe employment weakness, massive decline in corporate inventories, growing signs of stress in the commercial real estate market and still-declining housing prices.

After a brief rally at the start of the new year, equity markets resumed their bear market slide, albeit with a few interruptions, for the next two months. By the end of February, the S&P 500® Index had pierced its lows formed on November 21, 2008 and ultimately came to rest at a level first achieved in the summer of 1996. After reaching an intraday low of 667 on March 6th, a powerful rally of nearly 25% ensued. The rally saw the Index touch 833 on March 26th before pulling back a bit to end the first quarter. The rally came in part from some clarity on the U.S. government’s strategy for addressing “toxic” loans at troubled banks as well as some preliminary evidence that the rate of decline in economic activity was easing somewhat.

The broad U.S equity market, as measured by the Russell 3000® Index, fell -10.80% for the first quarter while the large-cap oriented S&P 500® Index retraced -11.01%. March’s strong performance stemmed some of the sharp losses experienced earlier in 2009. As was the case in the last half of 2008, the losses in the first quarter came against a backdrop of tremendous volatility in daily index movements. In step with U.S. markets, international stocks fell during the quarter. The MSCI All Country World ex-U.S. Index (Net), representing both developed and emerging international markets, slumped -10.71% for the first quarter.

The performance divergence between growth and value stocks widened significantly during the quarter. Within the U.S. large capitalization arena, growth outperformed value by more than 12%. The large-cap oriented Russell 1000® Growth Index fell just -4.12% for the quarter while the Russell 1000® Value Index tumbled -16.77%. Stocks in the technology and materials & processing sectors boosted the Growth Index’s return while stocks in the financial services sector once again burdened the Value Index.

The U.S. small-cap oriented Russell 2000® Index tumbled -14.95% for the quarter, weighed down by slumping prices for stocks within the financial services sector. For the quarter, value stocks retraced deeper than growth stocks in the small cap space.

Developed international stocks, as represented by the MSCI EAFE Index, fell -13.94% during the quarter. From a regional perspective, the commodity-oriented countries saw better returns; for example, Australian stocks were down just -1.58%. However, most major European countries fell harder than the overall index. Japan also fared poorly (-16.62%) in part due to the receding value of the yen versus the U.S. dollar. Emerging market stocks, as measured by the MSCI Emerging Markets Index, experienced a sharp rally in March and actually finished with a positive return for the quarter of 0.95%. Brazilian stocks experienced the most significant rally, with a notable 12.45% return for the first quarter. China finished the quarter with a positive return as well, up 1.33%.

Investments in the stocks of public real estate companies, including REITs, again experienced extreme volatility during the first quarter. The Dow Jones U.S. Select Real Estate Securities Index saw wide swings from day to day but ultimately saw much more downside pressure than upside. The Index fell -33.85% for the quarter and is down over 60% from a year ago.

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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 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.