PNC 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
• International Small Cap Equities also delivered a solid return in December as the MSCI World ex USA Small Cap NR index rose 2.42% for the month
• Emerging Markets Equities was another top performing class in the models with the MSCI Emerging Market index posting a 2.99% return in December

• 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
• U.S. Large Growth was another detractor during the month, as the S&P 500 Growth index lost 0.17% in December

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

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.