Second Quarter 2011 Financial Market Review, featuring Roddy Cummins, Senior Vice President and Chief Investment Officer at GuideStone Capital Management.

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A loss of economic momentum during the second quarter caused global equity markets to take a breather from the torrid pace of the past year. The S&P 500® Index returned a very volatile 0.10% for the quarter, while more conservative investments fared much better. Led by the U.S. Treasury sector, the Barclays Capital Aggregate Bond Index posted a solid gain for the quarter, up 2.29%. Despite the slow quarter for equities, the S&P 500® Index has returned 30.69% for the 12 months ending June 30.

The U.S. economy has been operating at growth rates well below its long-term capacity since the recovery began two years ago. Risk assets such as stocks are highly dependent on the future growth of the economy, so it’s no wonder that all eyes have been keenly focused on the economy’s wellbeing. The second quarter slowdown fueled increased volatility and created an overall cautious tone in the capital markets. It is widely accepted that this slowdown is due to temporary pressures surfacing from two sources: (1) supply disruptions in Japan and (2) the recent spike in oil prices. Both of which are expected to subside and lead to improved economic conditions as we move into the second half of the year. This anticipated improvement is an important consensus within the market, because with signs of inflation beginning to emerge and with concerns surrounding the level of government debt, the ability of government to rush in and provide additional stimulus is becoming more and more constrained.

Beyond the natural ups and downs of cyclical economic growth, several major secular problems remain a constant barrier to a more rosy long term outlook. Unemployment, housing, deleveraging and our federal and state governments’ fiscal conditions are all problems for which there are no easy or quick answers. With or without resolution, they represent challenges that may weigh heavily on economic growth for a long time. Having just passed the second anniversary of the recovery, it appears that the U.S. economy may be settling into a long term pattern of below average economic growth.

In uncertain times, it’s more important than ever to remain disciplined regarding your investment and savings program. Having well defined financial objectives and aligning those objectives with a well-diversified global portfolio that is consistent with your risk tolerance and time horizon will create a powerful tool for you to reach your financial goals and it will give you the confidence to persevere through any market environment.

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.