Monthly Retirement Update

Retirement Update – September 2020

Sep 8, 2020 | Defined Benefit, Industry Updates

Key Takeaways:

  • The US stock market had its best August since 1986, with the S&P500 hitting new all-time highs led by technology stocks
  • Pension interest rates increased as well offsetting the declines seen in July
  • Many plans will see funded status improvements over the month that are relatively larger than a typical monthly move but will most likely see them still down year-to-date

August 2020 Summary

The equity market recovery underway since the end of March plows ahead, despite a backdrop of virus related economic uncertainty.  Overseas markets remain below pre-COVID levels, but US stocks, heavy in a small number of large technology firms, have now surpassed their previous highs.

Despite the equity market recovery, many plans will have a lower funding level than at the start of the year due to falling discount rates which are down over 0.50% below year-end levels.  Looking forward, funding volatility is likely to continue through the remainder of the year with the equity markets vulnerable to both virus related developments and the US election.

Discount Rates & Asset Returns

Discount rates increased 0.35% in August. However, current rates are still down 0.57% since year end 2019 and are 0.34% lower than rates from this time last year. The FTSE pension discount index finished July at 2.66%.

Global equities and especially US equities increased to new highs fueled by better-than-estimated Q2 earnings and generally positive economic fundamentals. The Fed announced a shift to average inflation, confirming that monetary policy will remain supportive for the foreseeable future. Longer term treasury rates increased and the yield curve steepened. Credit spreads tightened somewhat causing more risky bonds like High Yield to outperform safer investments. The US Dollar depreciated vs. a broad basket of currencies.

What’s New at R&M?

Managing Director Featured in U.S. News and World Report Regarding Actuarial Careers

Michael Clark offers some great insight to those looking at careers in actuarial science, “the science of pricing risk”, in this U.S. News & World Report article.

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Our September FOURcast

  • Equity markets continued to move higher this month, although the recovery continues to be uneven. Credit spreads tightened modestly.
  • Eurozone inflation turned negative in August, raising chances that the European Central Bank will intervene.
  • The Federal Reserve announced that it will allow inflation to exceed the 2% target for periods of time before reacting; equity markets reacted positively to this “lower for longer” posture, while interest rates rose modestly at the back end of the yield curve.
  • The inflow of positive economic data continued; business sentiment improved while consumer spending also rose, albeit off a low base.

Click to read our full monthly macro update for September

SECURITY INDICES: This presentation includes data related to the performance of various securities indices.  The performance of securities indices is not subject to fees and expenses associated.  Investments cannot be made directly in the indices.   The information provided herein has been obtained from sources which River and Mercantile LLC believes to be reasonably reliable but cannot guarantee its accuracy or completeness.

CONFIDENTIAL:  For addressee use only, not to be disclosed to any other person without express consent from River and Mercantile LLC.  Past performance cannot be relied upon to predict future results.  River and Mercantile LLC is an investment advisor registered with the US Securities and Exchange Commission.

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