PNC Directions Portfolio and Performance Review

• U.S. GDP Remains Strong: GDP rose at a 2.8% annual rate in the third quarter, extending strong gains in the economy from the second quarter. While the number was slightly lower than second quarter GDP and less than estimates, the number still shows that the U.S. economy has remained resilient despite a number of headwinds.
• Headline and Core PCE Diverge: On an annual basis, headline PCE in September fell to a 2.1% rate, the lowest since February 2021. Core PCE, which excludes volatile food and energy items, remained unchanged at 2.7% on a year-over-year basis from August to September, though it was slightly higher than consensus estimates of 2.6%. Contributing to this reading was a rise in services prices, which saw a month-over-month increase of 0.3%.  
  
• Labor Strikes Keep U.S. Employment Roughly Unchanged: U.S. job growth, as reported by the Labor Department (released November 1^st), came in at 12,000 jobs in October, well below analyst expectations of 113,000. While a concerning number at first glance, the numbers reflect the impact of a labor strike by Boeing machinists. The report also noted that job growth in September was revised slightly lower to 223,000 from 254,000, but August was revised much lower to 78,000 from 159,000. Markets initially moved higher after the news, seemingly unphased by the print.
• Earnings Season in Full Swing: With the majority of S&P 500 companies having reported earnings, the quarter is beginning to look better than when it began. Blended earnings growth sits at 5.2%, up from the initial estimate of 4.4% at the beginning of the third quarter. The blended growth rate, excluding the Magnificent 7 (a group of 7 U.S. based tech stocks that have had noticeably better market performance recently), currently sits at 2.1% versus the initial quarterly estimate of 1.3%, that as of November 4^th. Additionally, growth estimates for fiscal year 2025 have now moved above the 15% projected growth rate.

• U.S. Mid Cap Value held up much better than many parts of the market with the S&P MidCap 400 Value Index shedding a modest 0.05% in October
• U.S. Corporate High Yield also performed relatively well with the Bloomberg U.S. Corporate High Yield Index only falling 0.54%*
• U.S. Large Cap Growth was a key contributor for the third month in a row with the S&P 500 Growth Index declining only 0.63%

*When held in applicable accounts

• International Small Cap was a top detractor with the MSCI World ex USA Small Cap Index tumbling 5.72%
• International Equities showed continued weakness in markets abroad with the MSCI World ex USA Index falling 5.10%
• Emerging Markets Equities sold off 4.45% in October (as measured by the MSCI Emerging Markets Index), that after a strong September showing of 6.68%

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

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.