PNC 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%
• Core Fixed Income also flipped from being a detractor to a contributor in June with the Bloomberg U.S. Aggregate Bond Index moving up 0.95%

• 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 during the month of June. 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.