By Rodric E. Cummins, CFA, Senior Vice President and Chief Investment Officer

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During the third quarter of 2010, global equity markets experienced a strong rally following a dismal second quarter. In the United States, markets were extremely volatile as stocks rose strongly in July, suffered declines in August and then recovered nicely in September. The S&P 500® Index posted a third quarter return of 11.29%, bringing the YTD return to 3.89%. The broader U.S. market, as measured by the Russell 3000® Index, posted similar returns of 11.53% for the quarter and 4.78% for the YTD period.

From a sector perspective, performance was unanimously in positive territory as all sectors within the Russell 3000® Index advanced during the quarter. Seven of nine sectors posted double-digit gains with the best performance coming from the materials & processing and utilities sectors. The weakest performing sectors were the healthcare and financial services sectors which still posted solid single-digit gains during the quarter.

In terms of equity market capitalization and style, everything (small, mid, large; growth, core, value) was up during the quarter as all major equity indexes experienced positive returns. Small-cap companies slightly underperformed their large-cap counterparts for the quarter based on the Russell 2000® Index and Russell 1000® Index performance. However, over the YTD period, small-cap has outperformed large-cap by about 4.70%. Growth outpaced value across all market capitalization segments during the period. The Russell 1000® Growth Index and Russell 1000® Value Index had quarterly returns of 13.00% and 10.13%, respectively. Over the YTD period, the large-cap growth index slightly outperformed the large-cap value index by only 0.13%.

International equity markets rallied during the quarter as well. The MSCI-EAFE Index (Net), a measure of international developed country returns, posted a solid third quarter return of 16.48%, largely due to a weakening U.S. Dollar relative to other currencies. The MSCI-EAFE Index’s (Net) YTD return reached positive territory at 1.07%. Once again, investors continued to favor equity investments in emerging market countries as the MSCI Emerging Market Index returned 18.03% for the quarter and 10.75% for the YTD period ending September 30th.

From a country perspective, most of the markets within the MSCI® All Country World ex-U.S. Index (representing both developed and emerging international markets) ended the period in positive territory. The best performing markets were primarily emerging markets countries and included Poland, Thailand, Chile and Columbia. The lone negative performing market was Ireland. From a sector perspective, all groups generated double-digit positive results. Economically sensitive sectors experienced higher returns than defensive stocks. The energy, materials and consumer discretionary sectors performed well on the basis of strong earnings gains, while the utilities, healthcare and consumer staples sectors were held back by their steady but subdued earnings prospects.

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 BNY Mellon 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.