PNC Capital Directions Portfolio and Performance Review

1-month
(Cumulative)

1-year
(Cumulative)

3-year
(Annualized)

5-year
(Annualized)

US Equities:
Russell 3000

2.74%

20.10%

20.62%

11.80%

International Equities:
MSCI ACWI ex USA IMI

3.01%

26.37%

19.84%

8.99%

U.S. Fixed Income:
Bloomberg US Aggregate Bond

0.39%

1.89%

4.08%

-0.29%

Source: Morningstar

  • Markets moved higher in August, but Technology continued to do much of the work. Through August 31, the S&P 500 index gained 2.72% over the preceding month and the Nasdaq Composite rose 4.24%. Small-cap and international-developed equities also gained, although they did not keep pace. Strong earnings supported equity markets, but higher interest rates remained a greater challenge for smaller companies and other businesses that rely more heavily on borrowing.
  • Corporate earnings were strong, although the overall growth rate was concentrated. So far, second-quarter earnings have been 52% higher than a year earlier, which came in well above initial estimates. However, a meaningful portion of that unexpected growth came from unusually large gains at several major technology companies. Nevertheless, results across the broader market were still positive, but not as strong as the overall figure suggests.
  • Inflation improved in July, but it remains above the Federal Reserve’s goal. The Consumer Price Index, or CPI, rose 0.1% from June to July, helped by temporarily lower energy prices, while the Core CPI, which excludes volatile food and energy prices, increased 2.5% from a year earlier. The Federal Reserve’s (Fed) preferred gauge of inflation, the Personal Consumption Expenditures Price Index, or PCE, showed higher inflation of 3.7% on a year-over-year basis, while the Core PCE, which excludes those volatile food and energy costs, rose 3.3%. The improvement in the inflation numbers is welcome, but the Fed will likely need to see a longer pattern of slower inflation before changing course when it comes to rate cuts.
  • Hiring slowed in July, but the labor market remained broadly stable. U.S. Non-Farm Payrolls declined by 23,000 in July, while the unemployment rate held near 4.1%. Even though a weaker month does not establish a broader trend, a softening jobs market could be a headwind to economic growth.
  • The U.S. Treasury took steps to support the bond market in August. Longer-term yields had risen amid concerns about inflation and the amount of new Treasury debt coming to market. On August 19, the Treasury announced that it would increase purchases of older, longer-term bonds to make them easier to trade (i.e., Treasury Refunding). This move may help steady the market, but it does not reduce the government’s borrowing needs. Meanwhile, the Fed left open the possibility of another rate increase if inflation remains elevated.

  • Emerging Markets Equities returned 3.37% over the last month, according to the MSCI EM index, which was driven by strong corporate earnings and a rotation back towards tech-heavy emerging markets like Taiwan and South Korea, which are benefitting from AI CAPEX infrastructure spending. The chief risk remains potential geopolitical disruptions in the Middle East or a stronger US Dollar, which can lower overall returns.
  • U.S. Large Cap Growth surged by 3.27% this month, thanks in part to ongoing investment in AI infrastructure, which resulted in earnings beats for mega-cap technology leaders. High expectations leave less room for error, meaning any signs of a drawdown could spike volatility.
  • U.S. Large Cap Blend came in third place, with the S&P index delivering 2.72% for the month. This rally was driven by a robust corporate earnings season, showing strong double-digit growth and resilient consumer spending that helped markets justify concerns about rising government bond yields. Looking ahead, inflation and a potential rate hike are the primary risks that could elevate this asset class’s volatility.

  • U.S. Mid-Cap Value declined 0.87% in August, as measured by the S&P MidCap 400 Value index. Higher interest rates and renewed strength among large technology companies left mid-sized value stocks behind, particularly in economically sensitive portions of the market.
  • U.S. Small-Cap Value returns advanced a modest 0.30%, as measured by the Russell 2000 Value index. Just as the case with Mid-Cap Value equities, higher interest rates weighed on smaller names, while mixed performance among financial, industrial, and other economically sensitive businesses kept the index from participating fully in the broader equity rally.
  • U.S. Core Fixed Income gained slightly over the last month, with the Bloomberg US Aggregate Bond index posting a 0.39% gain. The primary driver moving forward will be the rise in longer-term Treasury yields as the market reacted to hawkish tones at the July FOMC meeting.

  • No tactical allocation changes were made during August. Portfolio allocations remained unchanged following the June rebalance, which reduced U.S. Large Cap Blend and added to International Developed and Emerging Markets equities in applicable models. The adjustment was intended to improve geographic diversification while reducing some reliance on the largest U.S. companies. August’s performance did not change the longer-term reasoning behind that decision.
  • Portfolio positioning remains balanced and diversified. Strong earnings and continued economic growth remain supportive, but elevated interest rates and uneven inflation progress still warrant some caution. Diversification across regions, investment styles, and company sizes helps limit dependence on any single part of the market. Fixed income continues to provide useful income, although bond prices may remain unsettled if long-term rates move higher. Current conditions support staying invested and diversified, not increasing risk simply because markets performed well during the month.

For questions about your account holdings or performance, please contact your PNC Wealth Management Financial Advisor.

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