PNC Capital Directions Portfolio and Performance Review 

• Value Beats Growth in November: Despite a strong third quarter earnings season for S&P 500 stocks, U.S. growth stocks, like those featured in the NASDAQ Composite Index, took a breather in November, falling -1.57%, as investors have become increasingly concerned over what appears to be stretched valuations, particularly for those Magnificent 7 companies that have been at the forefront of the popular artificial intelligence trend. As a result, investors rotated into those seemingly more attractively priced value style stocks up and down the market capitalization range. This trend was pervasive with Developed International Equities, as well, as investors favored value stocks over growth during the period. U.S. fixed income, on the other hand, was modestly positive in November (the Bloomberg U.S. Aggregate Bond Index was up 0.62% in November) on a slight decline in interest rates during the month and strong corporate fundamentals, as evidenced by the S&P 500’s stellar third quarter earnings results.
• Jobs Numbers Surprises on the Upside: A sluggish jobs market rebounded a bit in September, according to the Bureau of Labor Statistics. In September, the U.S. economy added 119,000 jobs – that compared to consensus estimates of 50,000. Despite this stronger-than-expected jobs report, the unemployment rate moved higher to 4.4% as more workers reentered the work force.
• Consumer Sentiment Continues to Remain Low in November: The University of Michigan’s Consumer Sentiment Index continues to reflect consumers’ sanguine attitude of the U.S. economy as they continue to deal with higher prices and weakening incomes, with the index trending at 51 - close to its all-time low.
• All Eyes on the Federal Reserve Bank: Investors remain in limbo as they await the Federal Reserve Bank’s (Fed) December 10 interest rate decision. Concerns over the impact of a sluggish jobs market this year may lead the Fed to cut the fed funds rate again by 25 basis points, even though inflation has been on the rise since April. Despite the high probability of a rate cut on December 10, longer-dated maturities along the U.S. Treasury yield curve, like the Bellwether 10-Year Treasury Note, which is generally used to price a conventional 30-year fixed rate mortgage, remains relatively high making things like home ownership more restrictive for home buyers. According to Bankrate.com, the weekly national average for a 30-year fixed rate mortgage stood at 6.33% as of November 23.
• The Government Shutdown Could Have a Negative Impact on the U.S. Economy: The U.S. Government shutdown, the longest on record at 42 days, which ended on November 12, is expected to have a negative impact on fourth quarter Gross Domestic Product, with the Congressional Budget Office estimating $28 billion of lost output.

• U.S. Mid Cap Value was the top performer in the Capital Directions models with the S&P Mid-Cap 400 Value index rising 3.07% in November
• U.S. Small Cap Value was the next best asset class in the models with the Russell 2000 Value index up 2.81% during the month
• U.S. Large Cap Value was another top contributor during the period as the S&P 500 Value index appreciated by 1.69%

• Emerging Markets equities was the worst performing allocation in the models in November, falling by 2.39%
• U.S. Large Cap Growth was the next worst performer during the month as the S&P 500 Growth index declined by -0.93%
• U.S. Small Cap Growth was another weak performer in November with the Russell 2000 Growth index returning -0.68%

During the month of November, 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.