PNC Capital Directions Portfolio and Performance Review

 

1-month

1-year

3-year

5-year

U.S. Equities:
Russell 3000

3.16%

26.32%

11.36%

14.59%

International Equities:
MSCI ACWI ex USA IMI

3.65%

10.28%

3.12%

5.46%

U.S. Fixed Income:
Bloomberg US Aggregate Bond

0.53%

2.07%

(1.52%)

(0.60%)

Source: Morningstar

  • DeepSeek Leads to Deep Selloff: News of a relatively young Chinese company called DeepSeek sent markets spiraling on January 27th after its new Artificial Intelligence (AI) model raised doubts about U.S. dominance in AI. DeepSeek has been lauded for being able to create an AI model that can compete with those developed by leading U.S.-based companies for only a fraction of the cost. At market close on the 27th, the tech-heavy NASDAQ Composite fell 3.07% while the chip maker Nvidia fell 17.08%, wiping out around $600 billion from the company’s market cap and marking the largest single-day market value decline for a stock in history.
  • Federal Reserve Holds Rates Steady: At its January 28th meeting, the Federal Reserve (Fed) held its benchmark interest rate steady, in line with market expectations. Chairman Jerome Powell noted in his comments after the meeting that since the Fed has already brought rates to a less restrictive level over the past several months, the central bank does not need to be in a hurry to adjust rate policy further at this time.
  • Inflation Accelerates, but as Expected: The Fed’s preferred gauge of inflation, the Core Personal Consumption Expenditure Price Index (Core PCE), rose 0.2% in December, versus 0.1% in November, and 2.8% over the past 12 months. This increase was largely in line with what market participants were expecting, but the recent reacceleration in Core PCE has shown that the path to the Fed’s 2% inflation target is proving hard to achieve, and Fed officials project that they may not hit that goal until 2027.
  • 2024 GDP Growth: Driven largely by consumer spending, U.S. GDP grew 2.3% in the fourth quarter of 2024, up 2.5% from a year ago. Despite a deceleration in growth from the 3rd quarter and slower growth than in 2023, the U.S. economy still expanded at a healthy pace. While on-going concerns around the health of the economy had persisted throughout the year, a strong labor market and growth in real wages have helped to keep the consumer spending.
  • Record Trade Deficit: The U.S. goods trade deficit rose 18% to a record high in December as business increased imports significantly. It is believed that many businesses may be trying to stock up on industrial and consumer goods in anticipation of the new administration’s threat to impose tariffs on goods coming from certain countries.

  • International Quality Equities, a subset of non-U.S. stocks with higher profitability and other quality characteristics, led our relevant investment styles, with the MSCI World ex USA Sector Neutral Quality Index gaining 5.07%
  • International Equities, the broad-based group of large- and mid-cap stocks in developed markets outside the U.S., also performed well, as the MSCI World ex USA Index returned 4.97%
  • U.S. Mid Cap Value showed strength in domestic markets as the S&P MidCap 400 Value Index climbed 3.96%

  • Core Fixed Income started off the new year with a positive return but generally trailed equities, as the Bloomberg US Aggregate Bond Index rose just 0.53%
  • Emerging Markets Bonds also generated a decent return for fixed income, albeit lower than most equity style returns, as the Bloomberg EM USD Aggregate Index returned 1.06%
  • High Yield Bonds performed well – with their best return in the last four months – but lagged versus stocks too, as the Bloomberg US Corporate High Yield Index generated 1.37%

During the month of January, 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.

For questions about your account holdings or performance, please contact your PNCI Financial Advisor.

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