PNC Directions Portfolio and Performance Review 

• Some U.S. Markets Reach New Highs: Despite economic uncertainty and rising geopolitical tensions, major U.S. market indices moved higher setting records in June. The S&P 500 index overcame a 4.6% drop in Q1 to finish the first half of the year at a record high as did the tech-heavy NASDAQ. Meanwhile, U.S. small caps, as measured by the Russell 2000 index, remain in negative territory (-1.79%) for the first half of the year despite a strong showing in the second quarter (+8.50%).

• Federal Reserve Keeps a Wait-and-See Posture: The Federal Reserve (Fed) maintained the fed funds rate in a range of 4.25% to 4.50% at its most recent meeting, which concluded on June 17, continuing its pause since its last rate cut in December. Fed Chair Powell indicated that the Fed is in “no hurry” to cut rates amid the uncertain outlook for inflation due to the recent increase in trade tariffs on imported goods. The Fed has indicated that it expects to cut its policy rate two times this year based on its analysis of maximum employment and inflation (its two primary mandates).

• Inflation Remains Stubborn: The Core Personal Consumption Expenditures (PCE) Index, the Fed’s preferred gauge of inflation, rose 2.7% on a year-over-year basis in May, up from 2.6% in April. Though the U.S. economy has experienced substantial disinflation (slower price growth) since reaching its peak in 2022, getting to the Fed’s 2% inflation target has proven challenging. 

• Consumer Confidence Weathers Uncertainty: The University of Michigan’s Consumer Sentiment Survey increased in June, suggesting that consumers attitudes about the health of the economy have improved. The survey, which came in at 60.7 for June, is higher than May’s 52.2 reading, but still lower than its recent peak of 74 struck in December.

• U.S. Large Cap Growth was a top contributor for the third month in a row with the S&P 500 Growth index jumping 6.34%
• Emerging Markets was another top contributor with the MSCI Emerging Markets Index rising 6.01%
• U.S. Small Cap Growth was a top performer for the second month in a row with the Russell 2000 Growth index increasing 5.89%

• U.S. Municipal Fixed Income was a detractor for a second straight month with the Bloomberg Municipal index increasing just 0.62%
• U.S. Core Fixed Income was also a top detractor for the second month in a row with the Bloomberg U.S. Aggregate Bond index only increasing 1.54%
• U.S. High Yield was a top detractor with the Bloomberg U.S. Corporate High Yield Index up only 1.84%

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.