Key takeaways
- Discount rates were slightly down during the month
- US equities had a strong month while international equities were down
- For pension plans with US equity exposure, the likelihood of pension plan funded status increases in the neighborhood of 1%-2% is high.
November 2024 summary
Even as rates came down during November and liabilities ticked up, US equity markets saw significant gains after the presidential election. International equities struggled with the potential implications of a Trump presidency. When taken together, November was a significantly strong month for pension plan sponsors, especially those with exposure to the US equity markets. For average or mature plans, it wouldn’t be surprising to see funded status improvements in the realm of 1%-2%.
Rounding out 2024 will be one last Fed meeting in mid-December where it’s largely expected that the Fed will once again cut the Fed Funds Rate by 0.25%. With markets pricing in this expected cut, anything different from the Fed will create additional volatility in the markets. The market is also expecting more rate cuts in 2025 and any postering by the Fed about a slower pace to cuts could cause markets to pull back before year-end.
If rates continue to fall in 2025, it could setup another great year for pension plan sponsors to consider lump sum cashout windows.
Discount rates & asset returns
FTSE pension discount rate index last 12 months
Discount rates declined during November, decreasing by 0.10%. Rates are 0.16% below where they were one year ago. This marks the 4th consecutive month where rates are below where they were one year prior.
The Treasury yield curve shifted lower across all maturities except the 1–year in November. The largest shifts occurred in the 5, 7, 10, and 30–year maturities, which all fell by about 0.1% as the yield curve continues its normalization. The next Fed meeting will be held in December. The Fed has indicated that a 0.25% rate cut is on the table, yet the decision will depend on incoming economic data.
November 2024 Investment returns (%)
Source: Morningstar
November was a strong month for US Equities, posting a gain of 6.65%. International Developed Equities and Emerging Markets Equities fell 0.57% and 3.59%, respectively. These results were primarily driven by investor reactions to the US election results. Within US Equities, Consumer Discretionary and Financials were leaders, with respective gains of 13.34%% and 10.28%. Health Care was the worst performing sector, gaining 0.28%. Fixed Income experienced positive returns as interest rates fell, with long–duration bonds making larger gains than short-duration bonds. The US Dollar Index rose 1.69%, and the price of gold fell 2.98%. Credit spreads tightened relative to October month end.