PNC Capital Directions Portfolio and Performance Review

• Inflation Moves Slightly Higher: The Core Personal Consumption Expenditures Index (Core PCE Index), the Federal Reserve’s (Fed) preferred measure of inflation, grew by 2.8% on a year-over-year basis ending October 2024, accelerating slightly from the 2.7% growth over the same time one month ago. Increases in services prices (services account for around 60% - 70% of the overall Core PCE Index) was the major contributor to the uptick in inflation. Housing (e.g., rent), transportation (e.g. airfare) and recreational expenses (e.g., theaters) have all experienced outsized increases, recently. While price increases have slowed from January’s 3.0% growth rate, this demonstrates that the path to the Fed’s preferred target is not a straight line, and we can expect inflation to move up and down as it moves closer to the Fed’s 2% target.
• The Market Expects More Rate Cuts: Given the Fed’s recent “dovish” interest rate policy pivot that started in September (that is, cuts in the fed funds rate), stronger-than-expected jobs growth and mixed inflation data over the last couple of months suggests that the Fed may not be in a hurry to lower rates further. That is, the pace and magnitude of future rate cuts will be data dependent.
• Consumer Confidence Continues Rising: The Conference Board’s Consumer Confidence Index increased to 111.7 in November, the highest it has been since July 2023. The increase was widespread and included increases in both the Present Situation Index (based on consumers’ assessment of current business and labor market conditions) as well as the Expectations Index (based on consumers’ short-term outlook for income, business, and labor market conditions). (Source: The Conference Board) This data point helps to show that despite the higher prices that consumers have been facing over the past few years, they still remain optimistic about where the U.S. economy is headed.
• PNC Christmas Price Index: For the past 41 years, PNC has been publishing the PNC Christmas Price Index, a light-hearted look at how prices have changed over the past year. The index tracks the cost for one set of each of the gifts given in the song "The Twelve Days of Christmas." This year, this whimsical basket of goods rose to $209,272, an increase of 3.6% from 2023. In fact, the fastest growing segment of the PNC Christmas Index was a “Partridge in a Pear Tree,” which rose 16% on year-over-year basis.
  •  Visit PNC's Christmas Price Index page for more information.

• U.S. Small Cap Growth equities was a strong performer with the Russell 2000 Growth Index soaring 12.26%
• U.S. Small Cap Value stocks also showed strong performance with the Russell 2000 Value Index climbing 9.65%
• U.S. Mid Cap Value stocks was another key contributor with the S&P MidCap 400 Index increasing 8.85%

• Emerging Markets equities were a top detractor for the second month in a row with the MSCI Emerging Markets Index selling off by 3.59% during the month
• International Quality stocks (a subset of broader non-U.S. developed markets stocks we currently prefer on a tactical basis) also generated a slightly negative return over the month as the MSCI World ex USA Sector Neutral Quality Index fell 0.20%
• International equities (the broad group of non-U.S. developed markets stocks) were also a detractor for the second month in a row with the MSCI World ex USA Index rising just 0.24%

During the month of November, there were no asset allocation changes for 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).

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.