PNC Directions Portfolio and Performance Review

• Markets Start the Month on a Roller Coaster Ride: On August 5th, volatility spiked to highs not seen since the COVID-19 lockdowns began in 2020. Equity markets sold off considerably, which exacerbated a slump that began in mid-July. Among the factors contributing to the downturn were softening labor conditions and slowing growth across many developed countries. Divergent interest rate policies for two of the world’s largest economies – the U.S. and Japan – also had a hand in the sharp movements, following the Bank of Japan’s rate hike. Still, markets quickly rebounded, and most major indices recovered their losses by the end of the month.
• Rate Cuts Seem Almost Certain: Following the Federal Reserve’s Jackson Hole Economic Symposium, Fed Chair Jerome Powell indicated that “The time has come for policy to adjust... [and]… The upside risks to inflation have diminished.” The statement seemed to support what investors had already priced into the fed funds futures market: the Fed will likely cut its benchmark rate at its September 18th meeting. Still, uncertainty remains as to how much the Fed will cut its policy rate at this, and subsequent meetings.
• Inflation Continues to Cool: In the Commerce Department’s most recent Personal Consumption Expenditure (PCE) report, the headline PCE index rose 0.2% in July (on a month-over-month basis), and it was up 2.5% from the same period a year ago, which was in line with consensus estimates from Dow Jones. The Core PCE index, which strips out more volatile components of the index like food and energy, also increased 0.2% for the month, but was up 2.6% from a year ago, which was slightly softer than consensus estimates of 2.7%, further indicating that inflation continues to moderate.
• Consumer Confidence Continues Rising: Consumer sentiment often provides valuable insights as to the current and future state of the economy, given that consumer spending accounts for over two-thirds of GDP. The Conference Board’s reading on its Consumer Confidence Index for August was relatively benign in that regard, increasing to 103.3 from 101.9 in July. While the survey indicated consumers still feel relatively upbeat about their current situation, sentiment about the future remained subdued, with modestly higher concerns about the job market and income prospects.

• International Developed Equities was a contributor last month with the MSCI World ex USA index jumping 3.34%
• U.S. Large Cap Value was another contributor last month with the S&P 500 Value index increasing 2.96%
• U.S. Large Cap Growth moved from being a detractor to being a top contributor with the S&P 500 Growth index rising 2.19%

• U.S. Small Cap Value moved from being a top contributor to a detractor with the Russell 2000 Value index falling 1.88%
• U.S. Small Cap Growth, as another detractor, showed the weakness in U.S. Small Cap was broad-based last month with the Russell 2000 Growth Index declining 1.11% 
• U.S. Mid Cap Growth was a detractor with the S&P MidCap 400 Growth index shedding 0.74% for the month

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

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.