PNC Capital Directions Portfolio and Performance Review 

• Volatility normalizes as geopolitical unrest settles down: After experiencing severe market dislocations in March triggered by the Iran conflict, April was characterized by an uneasy stabilization following the temporary ceasefire agreed upon early in the month. Equity markets delivered a modest recovery as immediate tensions cooled. However, the macro environment remains fraught with mixed signals, and the overall conflict has not fully de-escalated. The market took a necessary breather this month, transitioning from pricing-in acute energy shocks.
• Commodity inflation becomes structural: Oil prices (WTI) settled marginally from their historic March highs but have established a firm, elevated floor. The ongoing disruptions in the Strait of Hormuz are no longer being viewed as temporary transit bottlenecks; instead, they represent a structural supply-side constraint. A long-term, fundamental shift in energy distribution and trade routes worldwide. This persistence creates a permanent risk premium in energy, steadily passing through to price inflation at the pump and on the shelves. The central banks’ hands are tied, as their ability to control elevated rates and inflation via demand-side tightening is largely ineffective if not detrimental against the fixed supply-side reality of higher oil prices and logistics costs.
• The Fed’s “Higher for Longer” is fully realized: Lingering hope for near-term rate relief was officially expunged in April. With the federal funds rate now anchored to 3.50-3.75% for a third consecutive meeting, the Fed’s current stance is widely accepted as the baseline for the foreseeable future. Markets are adjusting to an environment where the cost of capital matters, exposing vulnerable businesses that are reliant on debt to expand and grow, rather than free cash flows from operations.
• Growth re-emerges as a defensive posture: Paradoxically, the higher rate environment has pushed investors back toward select growth equities. The broad sell-off in early Q1 largely cleared out overextended valuations, and investors spent April bidding up large-cap U.S. tech and healthcare firms. Boasting gold plated balance sheets, and formidable pricing power, these mega-caps are increasingly viewed as havens against inflation, economic deceleration and geopolitical fragmentation.

• U.S. Large Cap Growth was the top performer this month, with the S&P 500 Growth index coming in at 14.79% as of 4/30/2026, compared to the S&P 500 at 10.49% for the same period. Blockbuster Q1 earnings and a geopolitical ceasefire sparked a historic valuation expansion in mega-cap technology and AI-adjacent leaders.
• Diversified Emerging Markets surged to 14.71% after being the largest detractor in March. The combination of a stabilizing US dollar and a rebound in international trade sentiment favored growth-heavy Asian markets and commodity-exporting regions.
• U.S. Small Cap Growth came in third place, delivering 14.69% for the month, as measured by the Russell 2000 Growth index. Pivoting 180 degrees from one of the three detractors in March, small-cap innovators enjoyed a “relief rally,” as their worst-case economic fears from March evaporated. High-growth companies recovered previous losses now in a lower-volatility environment.

• U.S. Core Bonds while technically positive at +0.11%, the Bloomberg US Aggregate index significantly trailed the broader portfolio and was the least performing index. Its high sensitivity to rate volatility acted as a source of drag in an environment that favored risk-taking over flights to safety.
• U.S. Corporate High Yield fared better than U.S. Cre Bonds, with the Bloomberg US Corp High Yield index rising to +1.69%. While it fared better than higher quality bonds due to its shorter duration and higher income levels, the index benefitted from a mix of “risk-on” equity sentiment and narrowing credit spreads, which capped its upside compared to the explosive growth in equities this month.
• Emerging Market Debt performance ended positive at +2.11% as tracked by the Bloomberg EM USD Aggregate index, but was pressured by rising US bond yields and a strengthening dollar. The resulting effect increased the perceived risk of credit and weighed down on financing costs for emerging market debt borrowers.

The tactical changes that were implemented across most Capital Directions overlay models in March (with the exception of the Multi-Asset Income Focused, Core Plus Fixed Income, Core Fixed Income, and Ultra Conservative model) remain firm. The primary equity adjustment had reduced US Large Cap Value and had increased US Large Cap Growth. This strikes a better balance between growth opportunities and stretched valuations amid a “higher for longer” rate environment.

Within the equity sleeve, we continue to maintain a tactical lean toward U.S. equities relative to non‑U.S. developed markets across most portfolios. This positioning is grounded in our view that U.S. companies continue to demonstrate superior earnings durability, stronger balance sheet quality, and more consistent sector leadership, supported by deeper and more liquid capital markets. While valuation discipline remains critical, we believe the relative resilience of U.S. cash flows and profitability justifies this bias, even as elevated interest rates weigh more heavily on rate‑sensitive segments of the market.

Within fixed income, our preference remains focused on an intermediate‑duration posture with an emphasis on higher‑quality, investment‑grade exposures. Core fixed income continues to play a critical role as a stabilizing anchor while monetary policy remains restrictive and inflation risks tied to energy markets and geopolitical uncertainty persist. In portfolios that incorporate below‑investment‑grade credit, we remain deliberate and selective, given ongoing refinancing pressures and the potential for renewed spread volatility in a sustained higher‑for‑longer rate environment.

For income‑oriented portfolios, positioning remains diversified across multiple sources of distributable cash flow, with a continued focus on selective allocations to higher‑yielding equities, high‑yield credit, and income‑focused alternative strategies where appropriate. This balanced approach is designed to enhance income generation while managing downside risk. As always, we will continue to evaluate market conditions, valuation dispersion, and evolving macroeconomic risks, adjusting positioning as needed to remain consistent with both prevailing conditions and each model’s long‑term strategic mandate.