PNC Capital Directions Portfolio and Performance Review 

• War-related volatility pushed global stocks and bonds lower in March: March ended with a bang as global equity markets rallied on hopes that the U.S.-led war in Iran might soon deescalate. Since the onset of the conflict on February 28, markets had been roiled by a sharp spike in oil prices, which amplified volatility across risk assets. Crude oil, measured by WTI, surged more than 60% from early‑February levels, stoking renewed inflation concerns. Those inflation fears contributed to a marked drawdown in major equity indexes during March, with the NASDAQ 100 and the MSCI All Country World ex USA indexes falling into correction territory (defined as a decline of 10% or more from a recent high). Bond markets were not spared either as rising inflation expectations pushed yields higher, extending pressure across interest‑rate‑sensitive assets. This pressure pushed investment grade bonds lower as evidenced by a 1.76% decline in the Bloomberg US Aggregate Bond index (Bloomberg US Agg). For most of the month, the only segment that consistently worked for investors was Energy, which posted gains on higher oil prices.
• U.S. equities stabilize as initial AI-shock is absorbed: This last month was defined by a harsh return to baseline expectations for the Technology sector. The year started off with unchecked enthusiasm for Artificial Intelligence (AI), driving valuations to seemingly unsustainable levels. The sell-off that began in February and reaccelerated through the end of March reflect investor concerns over stretched valuation after years of outsized multiple or price expansion. In addition to war-related market volatility, investors have been concerned about what they deem to be stretched valuations in this emerging market segment as well as concerns over this constantly evolving secular trend.
• Inflation realities negate March rate cut hopes: The Fed remained on pause with respect to its monetary policy efforts in March, leaving the fed funds target rate unchanged at 3.50% - 3.75% following its March 18 Federal Open Market Committee meeting. Concerns over higher inflation emanating from oil supply chain disruptions amid the war in Iran led the Fed to maintain its current monetary policy target as it continues to assess the economic and geopolitical landscape for additional clarity.
• Commodities maintain its risk premium: Oil at the pump and essential goods cannot be created on demand, and current geopolitical tensions underscore that reality. The disruptions we are seeing are fundamentally supply‑side in nature: the constraint lies in the capacity to produce and physically move goods. Persistent congestion in critical shipping corridors—most notably the Strait of Hormuz—has placed a durable floor under energy and freight costs. These are not temporary supply‑chain disturbances but structural, physical limitations. As long as these pressures persist, they will continue to pass through to headline inflation (which includes volatile food and energy prices), keeping price levels elevated regardless of the Fed’s near‑term policy stance.

• U.S. High Yield Bonds were the top performer in March, with the ICE BofA US High Yield index coming in at -1.19% compared to the Bloomberg US Agg at -1.76%. 
• The next best performer in the models was the Bloomberg US Agg, which finished the month down 1.76% - this as concerns over oil-related inflation caused yields to rise.
• U.S. Small Cap Value, as measured by the Russell 2000 Value index, posted a -3.94% return for the month. Higher rates were a headwind for this space as many of these types of companies tend to be locked into floating-rate or bank-financed debt, which makes them vulnerable to rates and uncertainty.

• Emerging Markets equities was the primary detractor across affected portfolios, returning -13.06% for March, as measured by the MSCI Emerging Markets index. The asset class is highly vulnerable to sudden shifts in currency and commodity prices. The sharp rise in the U.S. Dollar - driven in large part by the 10‑year Treasury yield climbing to 4.4% - created a meaningful headwind. A stronger dollar raises the cost of U.S.-dollar–denominated trade and financing for many Emerging Markets economies, and it also reduces EM asset returns when translated back into U.S. Dollars.
• Developed Markets equities faced significant weakness too, returning -10.84% for March as tracked by the MSCI ACWI ex USA index. The developed nations making the bulk of this index are highly industrialized countries that are resource-poor. Europe and Japan imports most of their energy for example, and as a consequence, oil shocks create a massive unavoidable drag on their manufacturing sectors as well as its consumers.
• U.S. Small Cap Growth was the third greatest point of weakness in the portfolio, delivering -6.30% in March as tracked by the Russell 2000 Growth index. Small cap growth companies tend to have thinner profit margins, low cash on-hand, and limited pricing power in the market. This leaves them especially vulnerable to external shocks.

Tactical changes 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 models. The primary equity adjustment reduced U.S. Large Cap Value and increased U.S. Large Cap Growth.

We view this change as a measured reallocation within U.S. equities rather than a broader increase in overall portfolio risk. Following February’s market dislocation, relative valuations and forward return potential improved across parts of the large-cap growth universe, creating a more attractive entry point than earlier in the year. While the interest-rate environment remains restrictive, we believe selected growth exposure may offer a more favorable opportunity set based on current valuation and market conditions.

Within the equity sleeve, we currently maintain a tactical overweight to U.S. markets relative to non-U.S. developed markets in most portfolios. That preference reflects our view that the U.S. market continues to offer stronger earnings visibility, broader sector leadership, and deeper capital-market depth, even as valuation discipline remains important. At the same time, we remain selective, as higher interest rates can still pressure more valuation-sensitive parts of the market.

Within fixed income, we continue to favor an intermediate-duration allocation focused primarily on higher-quality, investment-grade bonds. In our view, core fixed income remains an important source of portfolio stability while policy remains restrictive and inflation risks tied to energy and geopolitics remain elevated. Where portfolios include below-investment-grade exposure, we remain selective given refinancing risk and the potential for spread pressure in a higher-for-longer borrowing environment.

For income-focused portfolios, we continue to allocate across asset classes with an emphasis on diversified income generation, including selective exposure to higher-yielding equities, high-yield bonds, and income-oriented alternative strategies where appropriate. As always, we will continue to monitor market conditions, valuation dispersion, and evolving macro risks and will adjust positioning when warranted to remain aligned with both the current environment and each model’s strategic objective.