Post on 21-Mar-2021
STATE OF THE MARKETSImplications for Pension Plan Sponsors
May 6, 2014
Implications for Pension Plan Sponsors
Randy Glasbergen
Bulls versus bears
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Implications for Pension Plan SponsorsDow Jones Industrial Index
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Implications for Pension Plan Sponsors
John Ehrhardt, Zorast Wadia, Alan Perry, Milliman 2014 Pension Funding Study | April 2, 2014
Investment return on plan assets
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Implications for Pension Plan Sponsors
John Ehrhardt, Zorast Wadia, Alan Perry, Milliman 2014 Pension Funding Study | April 2, 2014
Plan assets and liabilities
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Implications for Pension Plan Sponsors
John Ehrhardt, Zorast Wadia, Alan Perry, Milliman 2014 Pension Funding Study | April 2, 2014
Asset allocation—equities
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Implications for Pension Plan Sponsors
Towers Watson Insider | January 2014
Funded status of Fortune 1000 Pensions
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Implications for Pension Plan Sponsors
Investment Company Institute, Retirement Assets Total $23.0T in Q4 2013 | March 26, 2014
US total retirement market
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THE BULL MARKET CASEState of the Markets
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The Bull Market Case
Market Watch, Layoff data point to stronger job growth | April 18, 2014
Jobless claims hover by lowest level since 2007
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The Bull Market Case
Market Watch, Layoff data point to stronger job growth | April 18, 2014
Continuing claims lowest since recession’s start
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The Bull Market Case
Market Watch, Layoff data point to stronger job growth | April 18, 2014
Labor market has most job openings in 6 years
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The Bull Market Case
Market Watch, Layoff data point to stronger job growth | April 18, 2014
Quitting, hiring still below pre‐recession levels
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The Bull Market Case
Federal Reserve Bank of St. Louis | 2014
Average hourly earnings
Shaded areas indicate US recessions
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The Bull Market Case
Federal Reserve Bank of St. Louis | 2014
Delinquency rate on loans
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The Bull Market Case
Federal Reserve Bank of St. Louis | 2014
Household debt payments as % of disposable income
Shaded areas indicate US recessions
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The Bull Market Case
Source: www.nerdwallet.com
Personal saving versus debt service
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The Bull Market Case
Federal Reserve Bank of St. Louis | 2014
CPI for all urban consumers
Shaded areas indicate US recessions
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The Bull Market Case
Federal Reserve Bank of St. Louis | 2014
Shaded areas indicate US recessions
Changes in volatility
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The Bull Market Case
JPMorgan, Guide to the Markets | Q2 2014
Total leverage
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The Bull Market Case
www.multpl.com | December 31, 2013
S&P 500 Earnings Growth Rate
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The Bull Market Case
JPMorgan, Worldview | Q1 2014
Nominal GDP in UK, US and Eurozone
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THE BEAR MARKET CASEState of the Markets
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FIEDLER’S FORECASTING RULES: RULE #13
“When you know absolutely nothing about the topic, make your forecast by asking a carefully selected probability sample of 300 others who don’t know
the answer either.”
—Edgar R. Fiedler
Edgar R. Fiedler, Across the Board | June 1977
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The Bear Market Case
JPMorgan, Guide to the Markets | Q2 2014
Interest rates and inflation
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The Bear Market Case
CNN/Money | April 18, 2014
Ned Davis Research looked at 15 stock market highs since 1962 and says the peak in new highs for individual stocks precedes the peak in the overall markets by 9 to 11 months.
The number of 52 week highs
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The Bear Market Case
Henry H. McVey, KKR, The Twin Roles of Real Assets| April 8, 2012
US debt as % of GDP
GDP = Gross Domestic Product; GSE = Government Sponsored Enterprises.Source: BEA, Federal Reserve, Morgan Stanley Research and “The Statistical History of the United States” by Ben Wattenberg. Data through 4Q2011.
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The Bear Market Case
Federal Reserve Bank of St. Louis | 2014
Public debt as % of GDP
Shaded areas indicate US recessions
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The Bear Market Case
Research Affiliates, LLC, Capital Markets Expectations | Q1 2014
Public debt and unfunded obligations as % of GDP
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The Bear Market Case
Research Affiliates, LLC, Capital Markets Expectations | Q1 2014
Corporate profits as % of GDP
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The Bear Market Case
Hussman Funds, The Coming Retreat in Corporate Earnings | December 16, 2013www.hussmanfunds.com
Profit margins
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The Bear Market Case
Sellwood Consulting LLC | May 1, 2014, based on data from www.multpl.com
Price to earnings versus Shiller CAPE
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The Bear Market Case
Research Affiliates, LLC, Capital Markets Expectations | Q1 2014
Forward stock returns set to be less than past
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The Balenthiran Cycle
The Bear Market Case
Kerry Balenthiran
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CAPITAL MARKETS OUTLOOKState of the Markets
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FIEDLER’S FORECASTING RULES: RULE #5
“If the facts don’t conform to the theory, they must be disposed of.”
—Edgar R. Fiedler
Edgar R. Fiedler, Across the Board | June 1977
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Capital Markets Outlook
Sellwood Consulting LLC, Realism in Forecasting | February 28, 2013, based on data from the 2012 Survey of Horizon Capital Market Assumptions
Realism in forecasting
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Capital Markets Outlook
Research Affiliates, LLC, Capital Markets Expectations | Q1 2014
Future long‐term bond returns closely follow entry period
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Capital Markets Outlook
Our building block approach is consistent across most fixed categories:Current real yield (or nominal yield spread) and duration (or spread duration) +0.4%+ Reversion effect of real yield (halfway to long‐term mean, over 10 years) +0.1%+ Assumed default rate, adjusted for an assumed recovery rate ‐0.1%+ Assumed (expected) US inflation +2.3%
Fixed income market returns
TreasuryBondReturn
YieldSpreadReturn
Inflation
Default/Recovery NegativeReturn
FixedIncomeSecurityReturn
2.7%
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FIEDLER’S FORECASTING RULES: RULE #1
“Forecasting is very difficult, especially if it’s about the future.”
—Edgar R. Fiedler
Edgar R. Fiedler, Across the Board | June 1977
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Capital Markets Outlook
Federal Reserve Bank of St. Louis | 2014
Over extended periods, markets grow with the economy
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Capital Markets Outlook
Federal Reserve Bank of St. Louis | 2014
…but on a one‐year basis there appears to be no correlation
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Capital Markets OutlookEquity market returns
Our building block approach:US inflation +2.2%+ Current dividend yield +1.9%+ Expected real earnings growth +1.7%+ Reversion effect of P/E ‐2.0%+ Capitalization premium N/A
Equity risk premium/DCF approach:Implied equity risk premium and historical avg. premium +4.3%+ Long‐term historical average +1.9%
5.4%
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FIEDLER’S FORECASTING RULES: RULE #3
“The moment you forecast you know you’re going to be wrong, you just don’t know when and in which
direction.”
—Edgar R. Fiedler
Edgar R. Fiedler, Across the Board | June 1977
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About Sellwood Consulting LLCSellwood Consulting LLC is an SEC‐registered investment advisor providing non‐discretionary, conflict‐free investment consulting services to institutional clients andplan sponsors. Our firm is structured to provide industry‐leading investment advice,the highest levels of client service, and uncompromising ethics.
Contact UsSellwood Consulting LLC
6650 SW Redwood Lane, Suite 370Portland, Oregon 97224(503) 596‐2880 Main
www.sellwoodconsulting.com
Charlie Waibelcharliewaibel@sellwoodconsulting.com
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