Key takeaways
- Discount rates popped up almost 0.40% during the month on the Fed’s outlook and positive economic data
- Equities were generally down across the board as market sentiment soured going into 2025
- Despite asset losses, most pension plan sponsors saw flat to positive funded status changes to finish off 2024
December 2024 summary
During December, the average funded status of corporate pension plans experienced another gain to round out the year as liabilities shrank more than pension assets during the month. Pension liabilities saw a significant decrease as discount rates rose close to 0.40% on the Fed’s forward-looking guidance and strong-than-expected economic data which point to the potential for the Fed to keep interest rates higher than previously expected for longer.
Assets didn’t fare as well during the month, with the prospect for fewer rate cuts in 2025 on the heels of positive economic data fuelling the potential for persistent higher-than-target inflation, markets reacted negatively.
Even with negative asset returns, the substantial decrease in liabilities more than made up the difference pushing most pension plans in to funded status increases for the month.
Discount rates & asset returns
FTSE pension discount rate index last 12 months
Discount rates rose significantly during December, increasing by 0.39%. This marks the second time this year that rates have surged above 5.50% and is the second largest month–to–month change of the year. Discount rates finished the year 0.71% higher than where they were in December 2023.
US Treasuries
The Treasury yield curve shifted lower across maturities less than 2 years, and higher across maturities 2 years and greater. The largest shifts occurred in the 5, 7, 10, and 30–year maturities, which all rose by about 0.4% as the yield curve continues its normalization. The December Fed meeting resulted in a 0.25% rate cut. However, forward guidance was hawkish, as Jerome Powell indicated that there will likely be only 2 more rate cuts. The next Fed meeting will be held in January.
December 2024 investment returns (%)
November was a weak month for US equities, with all cap US equities posting a loss of 3.06%. International Developed Equities and Emerging Markets Equities fell 2.27% and 0.14%, respectively. Within US Equities, Communication Services and Consumer Discretionary were leaders, with respective gains of 3.58% and 2.39%. Materials was the worst performing sector, losing 10.72%. Fixed Income experienced negative returns as interest rates rose, with long–duration bonds taking larger losses than short-duration bonds. The US Dollar Index rose2.59%, and the price of gold fell 1.12%. Credit spreads widened relative to November month end.