PNC Capital Directions Portfolio and Performance Review

• Federal Reserve Remains Cautiously Optimistic: At the Federal Reserve’s June meeting, the Open Market Committee maintained its view that inflation will continue to trend lower, but it also noted that progress on inflation has been slower than officials had hoped. Indeed, the most recent inflation figures showed price growth only modestly above the roughly 2.0% objective and trending lower. Yet, unemployment has crept up to 4.0% – well off the cycle low of 3.4%. With this backdrop, PNC Economics forecasts two rate cuts in 2024.
• Housing Sales Fall: In the most recent reading of U.S. Census Bureau, sales of new single-family homes fell 11.3% month-over-month, bringing new home sales to its lowest level in six months. High interest rates and increasing housing costs have continued to weigh on buyers’ ability to purchase homes.
• Volatility on the Rise in Europe: Volatility in European markets, as measured by the Stoxx-50, is nearing levels not seen since the European sovereign debt crisis, which peaked between 2010 and 2012. Recent election upsets in a number of European countries, especially in France, have added to uncertainty in a region that was already plagued by stubborn inflation and low growth.
• U.S. Stocks Continue to Reach New Highs: The S&P 500 as well as the Nasdaq have both reached all-time highs at multiple points in 2024, with the S&P 500 reaching new heights over 30 times in the first half of this year. Yet, this rise in equity markets has been largely driven by a small number of mega-cap technology companies, those which have also contributed the most to overall earnings growth this year.
• Government Bond Yields Fall: Rates across the U.S. Treasury yield curve softened modestly amid tepid economic news. Inflation news was largely in line with expectations while manufacturing and construction data disappointed. Still, employment did surpass expectations. By the end of June, the Atlanta Fed GDPNow model projected 2.2% annualized GDP growth for the second quarter of 2024, down from 2.7% predicted a month earlier.

• U.S. Large Cap Growth was the top contributor for a second month in a row with the S&P 500 Growth index rising 6.98%
• Emerging Markets moved from being a detractor last month to a contributor this month with the MSCI Emerging Markets index increasing 3.94%
• U.S. Quality Dividend Growth – a tactical preference within U.S. Large Cap allocations – added to performance with a 3.13% return for the WisdomTree US Quality Dividend Growth index.

• International Small Cap was a detractor with the MSCI World Ex USA Small Cap index falling 2.88%
• U.S. Mid Cap Value moved from being a top contributor to a detractor as the S&P MidCap 400 Value index dropped 1.90%
• U.S. Small Cap Value also showed the weakness of the value space last month with the Russell 2000 Value index declining 1.69%

There were no asset allocation changes for the program during the month of June.

Within stocks, we continue to prefer a tactical overweight to U.S. markets versus non-U.S. developed markets 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, a potentially defensive bias for portfolios as the broader equity markets have continued to grow more concentrated in the top stocks and remain relatively expensive by historically valuation measures.

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 more conservative portfolios – those with higher allocations to fixed income – include some dedicated positions to below-investment grade bonds, our target allocations are tactically tilted towards higher quality for the near term when compared with our long-term preference for these investments.

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.