U.S. stocks enjoyed strong gains in the third quarter. Buoyed by hopes for continued monetary stimulus and a rebound in the global economy, investors bid up stocks despite slowing profit growth. The Federal Reserve played a strong role in bolstering sentiment in the third quarter. Indeed, quelling fears of an early taper, the Fed surprised most observers by deciding to delay tapering its purchases of long-term securities, which have helped limit the rise in long-term rates as the economy has improved. However, as the period ended, a showdown over the budget ensued, and rankling over the debt ceiling loomed. Most of the major stock indexes moved into record territory before pulling back toward the end of the period amid concerns about the underlying strength of the economy and the growing probability of an October 1 federal government shutdown.
The Equity Index 500 Fund returned 5.17% in the quarter compared with 5.24% for the S&P 500 Index and 5.17% for the Lipper S&P 500 Objective Funds Index. For the 12 months ended September 30, 2013, the fund returned 19.05% versus 19.34% for the S&P 500 Index and 19.03% for the Lipper S&P 500 Objective Funds Index. The fund's average annual total returns were 19.05%, 9.77%, and 7.29% for the 1-, 5-, and 10-year periods, respectively, as of September 30, 2013. The fund's expense ratio was 0.28% as of its fiscal year ended December 31, 2012.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The Equity Index 500 Fund charges a 0.5%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The portfolio seeks to provide broad exposure to large-cap U.S. stocks by replicating the structure and performance of the S&P 500 Index. Most S&P 500 sectors produced positive returns on a total return basis. Materials stocks performed best, helped by rebounding precious metals prices. Industrials and business services and consumer discretionary shares also did very well. The health care and information technology sectors fared slightly better than the broad market, while energy performed in line with the index and financials trailed somewhat. Consumer staples and utilities were flat, but telecommunication services declined.
While monetary policy has always played an important role in driving markets, recent months have seen investors paying exceptional attention to signals coming from the central bank. T. Rowe Price managers note that, as the Fed eventually gets closer to winding down its stimulus, fundamental factors, such as corporate earnings and cash flow, should become more important. They also note that unemployment has declined sharply and continues to, housing prices and sales have rebounded, and investor sentiment improved as corporate earnings recovered.