PNC Capital Directions Portfolio and Performance Review

• Markets Jittery Over Soft Economic Reports: Equity markets have had a bumpy ride in February amid a series of weak economic data points and geopolitical factors. Lackluster retail sales results as well as a meaningful drop in U.S. Private Sector growth has weighed on consumer confidence, likely putting downward pressure on domestic stocks. At the same time, concerns over tariffs continue to make investors jittery given the uncertainty over what that means for inflation, jobs and GDP growth. As a result, investors found solace in U.S. Government bonds causing Treasury yields to fall (and bond prices to rise) during the month.
• Inflation Remains Untamed: Inflation has been on the rise in recent months. Since September, when the Consumer Price Index hit a low of 2.4% on a year-over-year basis, price growth has edged up each month since then reaching a pinnacle of 3% in January. Factors contributing to this reacceleration in inflation include higher energy costs, used vehicles and transportation. Rising price levels has sidelined the Federal Reserve’s (Fed) efforts to rein in inflation and it’s likely that the Fed will hold off on future rate cuts until the economic data shows progress towards its inflation target.
• Housing Prices Continue to Rise: The Case-Shiller National Home Price index rose to a new high in December, with the index rising 3.9% on a year-over-year basis. The index has now increased for 23 straight months, which demonstrates the impact that high rates and low inventories have had on home prices in the current economic backdrop.
• Earnings Season Closing Out Strong: Despite some of the current economic weakness, earnings growth for the S&P 500 index has come in rather strong for the fourth quarter of 2024, and these stellar numbers have been supportive of already stretched equity valuations. As of February 24^th, the S&P 500 index booked a 17.3% earnings growth rate in the fourth quarter – that compared to initial estimates of 11.9% on 12/31/2024.

• Core Fixed Income was the top performer for last month, with the Bloomberg Aggregate Bond Index moving 2.20% higher
• International Equities moved from being a detractor to being a contributor, with the MSCI World ex USA Index jumping 1.76%
• Emerging Markets Debt also showed strength in fixed income, with the Bloomberg EM USD Aggregate Index rising 1.62%

• U.S. Small Cap Growth was a detractor, with the Russell 2000 Growth Index plummeting 6.77%
• U.S. MidCap Growth was another detractor, with the S&P MidCap 400 Growth Index falling 5.58%
• U.S. Small Cap Value further showed the weakness in small cap equities, with the Russell 2000 Value Index dropping 3.83%

During the month of February, there were no changes to target asset allocation models in the program.

Within stocks, we continue to prefer a tactical overweight to U.S. markets versus non-U.S. developed markets for most portfolios, based on what we believe to be the relatively stronger position of the U.S. economy. As part of U.S. allocations, we still favor a tilt to higher-quality, dividend-paying growth stocks as well as lower volatility stocks, for their potential to mitigate some downside.

In fixed income, we continue to prefer an intermediate duration (i.e., interest rate sensitivity) allocated to mostly higher quality, investment-grade bonds, as we expect slower economic growth over the near term. While some portfolios have positions in below-investment grade bonds, we have tactically underweighted this area (excluding some income-oriented portfolios).

For accounts following our multi-asset income-focused approach, we continue to allocate across asset classes with an eye towards higher distributions versus traditional, broad-based markets. We strategically favor areas such as large cap value stocks and high-yield bonds as well as alternative strategies, such as those which generate income with the use of derivatives.

We continue to diligently monitor the markets and your account, and we will keep you abreast of any changes to your portfolio allocation and investment selection that we deem appropriate so that you’re well positioned for what’s ahead.