Transcript:

Hi, I’m Vesna Peroska, portfolio manager from Morningstar Investment Management. Welcome to this week’s Morningstar Market Minute, a video series where we explore markets, the economy, and other notable trends every Friday lunchtime.

It’s been another busy week with data releases, policy announcements and equity market highs. Markets priced in rates cuts in the US and domestically after recent central bank announcements. Persistent inflation remains a risk to long term rates and therefore the role of duration in a portfolio. Despite policy and valuation risks—equity markets continued their trend higher. The US equity market reached another all-time high this week. Supported by passive flows and sentiment. This past week the US equity market is up around 1%. US banks lagged on concerns for lower interest rates, the US government shutdown and weak employment data. Our investment process has seen value in health care stocks and this is one area our portfolios have been positioned. Health care stocks outperformed the broader market in a relief rally, higher 5% for the week. This comes after some of the concerns surrounding US drug pricing and tariff policy abated. This change came after Pfizer (NYSE:PFE) announced an agreement between the US allowing patients access to discounted prescription drugs through a new federal website.

Emerging market equities are also up about 2%. Meanwhile both Korea and China tech stocks performed well returning over 6% on renewed optimism around AI. We have been profit taking across positions in these markets and rotating into other areas including other emerging market equities, where we currently see better value. Globally, the energy sector has shown weakness this week in reaction to potential increased OPEC supply and a US government shutdown.

Closer to home, the RBA left the cash rate steady at 3.60%. The board noted recent data suggested inflation could be higher than previously forecast and that the economic outlook remained uncertain. Australian equities are almost 2% higher in the week. Resources and banks both delivering strong returns. As some equity markets continue to reach new highs and valuations look tight, it is reasonable to be cautious as valuations are a strong indicator of future returns. Yet this trend higher in markets can continue, especially where supported by passive flows. We therefore remain invested, allocating to better valued areas of the market such, such as emerging markets, healthcare and consumer stocks. While also considering the role of diversifiers across our multi asset portfolios.