PNC Directions Portfolio and Performance Review

• Inflation Continues to Moderate: On July 11^th, the June Consumer Price Index (CPI) data was released, showing its first month-over-month decline since 2020. Additionally, the 12-month change in "core" CPI (excluding more volatile food and energy prices), fell to 3.3%, the weakest core price growth for the index in more than three years and well below its peak of 6.6% in 2022. Following the news, market expectations for the Fed Funds rate over the coming months moved lower and yields for most U.S. Treasury maturities declined.
• Federal Reserve Sees Path to Cutting Rates: At the Federal Reserve’s July meeting, the Federal Open Market Committee held the Fed’s benchmark short-term interest rate steady at a target range of 5.25%-5.50%. Notably, the Federal Reserve indicated that interest rate cuts are finally on the horizon, as the Fed may be increasing its focus on keeping unemployment low since inflation has been trending toward its long-term 2% target.
• Global Central Banks in Action: The Bank of Canada (July 24^th) made its second consecutive rate cut, noting falling inflation and weak household spending. The Bank of England (August 1^st) also made a rate cut – its first change in nearly a year – with its inflation rate at multi-year lows. Unemployment has been rising in both countries, too. This follows the trend of many central banks that have either begun, or are looking to begin, cutting rates. However, one notable departure from the global trend has been occurring in Japan, which has raised interest rates twice in 2024 after years of low, and sometimes negative, rates.
• Strong Q2 GDP: In the second quarter, U.S. GDP increased at an annualized rate of 2.8%. Overall, this was a strong number, noticeably higher than the first quarter’s 1.4% rate. The growth was broad-based, with most of the components of GDP expanding, although trade was, again, a drag on growth.
• Weak Jobs Report: The latest jobs report, released August 2^nd, showed that the U.S. economy added only 114,000 jobs in the month of July. This was well below both the DOW estimate of 185,000 and June’s job report of 179,000. Additionally, the unemployment rate increased to 4.3%, which is still low when taking a long-term view, but the trend in increasing unemployment is concerning to market participants. Stocks sold off after the report was released, with all major U.S. indices moving lower.

• U.S. Small Cap Value moved from being a detractor last month to a contributor this month with the Russell 2000 Value index soaring 12.19%
• U.S. Small Cap Growth showed that small caps as a whole were strong performers this month with the Russell 2000 Growth index jumping 8.19%
• U.S. Mid Cap Value moved from being a detractor to a top contributor as well with the S&P MidCap 400 Value index increasing 7.56%

• U.S. Large Cap Growth flipped from being a top contributor to a detractor, with the S&P 500 Growth index falling 1.30%
• Emerging Markets followed the same path as U.S. Large Cap Growth, also moving from being a top contributor to a detractor with the MSCI Emerging Markets Index increasing only 0.30%
• Municipal Fixed Income was a detractor, where applicable, with the Bloomberg Municipal index rising just 0.91% (Core Fixed Income, measured by the Bloomberg US Aggregate Bond index, returned 2.34%)

There were no asset allocation changes during the month of July.

In Equities, we continue to strategically favor Small-Cap, Mid-Cap and Emerging Markets equities for long-term growth potential.

In Fixed Income, we generally make use of diversified intermediate (i.e., "Core") bond funds that balance current yield with the risk of interest rate sensitivity while maintaining high credit quality. However, we have a strategic preference for allocations to riskier spread sector bond allocations (i.e., Core Plus, High Yield and Emerging Market Bonds) in more conservative accounts, adding the potential for diversification within the overall portfolio exposure to bonds.

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.