PNC Directions Portfolio and Performance Review

• Inflation Moves Slightly Higher: The Core Personal Consumption Expenditures Index (Core PCE Index), the Federal Reserve’s (Fed) preferred measure of inflation, grew by 2.8% on a year-over-year basis ending October 2024, accelerating slightly from the 2.7% growth over the same time one month ago. Increases in services prices (services account for around 60% - 70% of the overall Core PCE Index) was the major contributor to the uptick in inflation. Housing (e.g., rent), transportation (e.g. airfare) and recreational expenses (e.g., theaters) have all experienced outsized increases, recently. While price increases have slowed from January’s 3.0% growth rate, this demonstrates that the path to the Fed’s preferred target is not a straight line, and we can expect inflation to move up and down as it moves closer to the Fed’s 2% target.
• The Market Expects More Rate Cuts: Given the Fed’s recent “dovish” interest rate policy pivot that started in September (that is, cuts in the fed funds rate), stronger-than-expected jobs growth and mixed inflation data over the last couple of months suggests that the Fed may not be in a hurry to lower rates further. That is, the pace and magnitude of future rate cuts will be data dependent.
• Consumer Confidence Continues Rising: The Conference Board’s Consumer Confidence Index increased to 111.7 in November, the highest it has been since July 2023. The increase was widespread and included increases in both the Present Situation Index (based on consumers’ assessment of current business and labor market conditions) as well as the Expectations Index (based on consumers’ short-term outlook for income, business, and labor market conditions). (Source: The Conference Board) This data point helps to show that despite the higher prices that consumers have been facing over the past few years, they still remain optimistic about where the U.S. economy is headed.
• PNC Christmas Price Index: For the past 41 years, PNC has been publishing the PNC Christmas Price Index, a light-hearted look at how prices have changed over the past year. The index tracks the cost for one set of each of the gifts given in the song "The Twelve Days of Christmas." This year, this whimsical basket of goods rose to $209,272, an increase of 3.6% from 2023. In fact, the fastest growing segment of the PNC Christmas Index was a “Partridge in a Pear Tree,” which rose 16% on year-over-year basis.
  •  Visit PNC's Christmas Price Index page for more information.

• U.S. Small Cap Growth equities was a strong performer with the Russell 2000 Growth Index soaring 12.26%
• U.S. Small Cap Value stocks also showed strong performance with the Russell 2000 Value Index climbing 9.65%
• U.S. Mid Cap Value stocks was another key contributor with the S&P MidCap 400 Index increasing 8.85%

• Emerging Markets equities were a top detractor for the second month in a row with the MSCI Emerging Markets Index selling off by 3.59% during the month
• International equities (the broad group of non-U.S. developed markets stocks) were also a detractor for the second month in a row with the MSCI World ex USA Index rising just 0.24%
• International Small Cap stocks, like its larger capitalization counterparts, also appeared last month with the MSCI World ex USA Small Cap Index modestly rising by 0.36%

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

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.