PNC Capital Directions Portfolio and Performance Review 

• Stocks Had Another Great Year in 2025: U.S. Large Caps: Despite modestly negative returns for the broad U.S. stock market in December, the Russell 3000 index, a proxy for the broad U.S. stock market, posted a 17.15% return in 2025. In December, U.S. growth stocks up and down the market capitalization spectrum took a breather while investors rotated into value stocks, which posted mildly positive results for the month. The S&P 500 Growth index delivered a -0.17% in December while its value equivalent, the S&P 500 Value index, added 0.35% during the month. For the year, however, U.S. growth stocks, particularly those that operate in the newly forged artificial intelligence segment, remained the top performer in the U.S. with the NASDAQ index, a proxy for “megacap” growth stocks, rising 21.02% in 2025. U.S. Small Caps: Small cap stocks, as measured by the Russell 2000 index, generated similar results with value outpacing growth by 146 basis points in December (0.18% versus -1.28%). International Equities: Developed and emerging market equities posted strong positive performance in December with the MSCI World ex USA NR index forging ahead by 3.00% and the MSCI Emerging Markets index finishing the month with a 2.99% return. For all of 2025, international equities, including emerging market stocks, had an exceptional year with the MSCI ACWI ex USA NR index posting a 31.96% return. Strong international equity performance this year was aided by a combination of factors that include, but are not limited to, improving fundamentals and a weakening U.S. dollar, as measured by the U.S. Dollar Index (DXY).
• U.S. Bonds Had a Great Year, Too! U.S. fixed income, as measured by the Bloomberg U.S. Aggregate Bond index, had a modestly negative December (-0.15%) as the yield on longer-dated maturities rose slightly despite the Federal Reserve Bank’s (Fed) recent decision to cut the fed funds rate by another 25 basis points on December 10, which took its policy benchmark down to a range of 3.50% - 3.75%. Notwithstanding this weak monthly showing, the Bloomberg U.S. Aggregate Bond index rose 7.30% for all of 2025, led higher by falling rates and tightening credit spreads on both investment grade and high yield corporate credit as well as mortgage-backed securities, in particular.
• Equity Markets Propelled Higher by Strong Consumer Spending and Earnings Results: Despite weakening consumer sentiment numbers throughout 2025, U.S. and international markets generally moved higher on solid consumer spending, business investment and corporate top- and bottom-line results. For example, U.S. GDP results have shown tremendous resilience in the second and third quarters of 2025, which has helped the S&P 500 index to post double digit quarterly earnings growth for most of 2025.
• Consumers and Investors Remain Concerned About the Economy: Although most stock and bond indexes posted positive returns for 2025, investors and consumers alike remain concerned about the trajectory of the U.S. economy. Factors weighing on the consumer and investor psyche these days include a softening jobs market, stubbornly higher rate of inflation, geopolitical uncertainties, the negative impact of tariffs on prices and the lack of housing affordability.

• International Developed Equities was the best performing asset class in the Capital Directions models led by a 3.00% gain in the MSCI World ex USA NR index
• Emerging Markets Equities was the next best asset performing class in the models with the MSCI Emerging Market index posting a 2.99% return in December
• U.S. Large Cap Value was another top contributor during the period as the S&P 500 Value index appreciated by 0.35%

• U.S. Small Cap Growth, the top detractor during the month, was the worst performing allocation in the models as the Russell 2000 Growth index fell 1.28%
• U.S. Fixed Income, as measured by the Bloomberg U.S. Aggregate Bond index, was the next weakest performer during the month as the index declined by a modest 0.15%, that as longer-dated bond yields rose during the period
• U.S. Mid Cap Growth also declined during the month as the S&P MidCap 400 Growth index posted a loss of 17 basis points

During the month of December, there were no changes to target asset allocation models in the program.

Within stocks, we continue to prefer a tactical overweight to U.S. markets versus non-U.S. developed markets for most portfolios, based on what we believe to be the relatively stronger position of the U.S. economy. As part of U.S. allocations, we still favor a tilt to higher-quality, dividend-paying growth stocks as well as lower volatility stocks, that for their potential to mitigate some downside.

In fixed income, we continue to prefer an intermediate duration (i.e., interest rate sensitivity) allocated to mostly higher quality, investment-grade bonds, as we expect slower economic growth over the near term. While some portfolios have positions in below-investment grade bonds, we have tactically underweighted this area (excluding some income-oriented portfolios).

For accounts following our multi-asset income-focused approach, we continue to allocate across asset classes with an eye towards higher distributions versus traditional, broad-based markets. We strategically favor areas such as large cap value stocks and high-yield bonds as well as alternative strategies, such as those which generate income with the use of derivatives.

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.