Hi, I’m Ameya Hattangadi, Associate Portfolio Manager at Morningstar Investment Management. Welcome to the Morningstar Market Minute, a video series where we explore markets, the economy, and other notable trends.

The biggest risk markets are grappling with right now isn’t growth. It’s energy and geopolitics.

Ongoing tensions in the Middle East pushed oil prices higher again, and that’s flowed pretty quickly through markets via higher inflation expectations and rising bond yields. Even though growth momentum is cooling in many economies, higher energy prices still act like a tax on consumers, and that’s what markets are trying to digest right now.

For central banks, it makes things tricky. Here in Australia, the focus is on the Reserve Bank, which has just announced another rate rise today. While headline growth has held up, the underlying picture is softer, particularly for household demand, and inflation remains uncomfortably high. That leaves the RBA navigating a difficult trade‑off. In the US, the Fed looks comfortable staying on hold, with little appetite to hike further, with additional rate cuts dependent on inflation falling further.

In markets, bond yields moved higher, particularly further out the curve. What’s been interesting, though, is that equities have held up better than many expected. Rather than a broad sell‑off, we’ve seen rotation under the surface, with energy and defensives outperforming, while more rate‑sensitive and momentum‑driven areas have struggled.

From a portfolio perspective, this is where balance really matters. We’re focused on building broadly diversified portfolios designed to absorb shocks when they come, rather than trying to predict every headline. Staying disciplined on valuations is also critical. That means being cautious where expectations are high and margins for error are thin, and leaning toward areas like healthcare and consumer‑facing stocks, where valuations are less stretched and offer a higher margin of safety. With corporate credit spreads still tight, we also see value in high‑quality corporates and government bonds as part of a balanced portfolio.

The key takeaway right now is this: markets aren’t panicking, but they’re no longer complacent, and that’s when disciplined, diversified portfolios matter most.

That’s it for this week’s Market Minute. Thank you for watching, and see you next week.