Welcome to this week’s Morningstar Market Minute, a weekly video series where we cover recent market and economic news, as well as our portfolio positioning.

Rising tensions in the Middle East dominated headlines this week. Energy futures prices retraced last week’s gains as events de-escalated. Moving to the equity markets, the US was up 2% by Wednesday’s close. These headline numbers hide the lack of breadth in the market.

More recently, Nvidia (NASDAQ:NVDA) was a standout, reaching highs of over $154, with investors buoyed by optimism for the AI hardware supply chain and Nvidia’s expanding software and cloud services business. U.S. bank performance has also been strong on expectations that they will perform well in the upcoming annual stress tests, freeing up capital to increase dividends and buybacks.

Closer to home, the Australian equity market appeared to run out of steam this week after a strong run this quarter. The resources sector was affected by weaker expectations for Chinese demand and lower iron ore prices. Banks helped provide some balance to the market.

In the US, Fed Chair Powell concluded two days of testimony before the US Senate and House. During this time, he said that tariff inflation effects were uncertain and that the Fed is well positioned to take a wait-and-see approach to rate cuts.

The US curve has steepened, with expectations of rate cuts pulling down short-term rates, while concerns about debt issuance kept long-term rates higher. These concerns were also partly reflected in a weaker USD against a broad basket of currencies. Fixed income markets have also been pricing in domestic rate cuts.

What this means for our portfolios is that while we remain focused on valuations as a driver of long-term returns, we must also be aware of the environment when we invest. So far, this year has been one where the range of outcomes for inflation rates, tariff policy, and geopolitics has been wide. In this context, it’s important to consider holding well-priced investments that can perform well under a variety of scenarios. For example, our portfolio holdings in consumer defensive companies are both well priced and can reasonably be expected to perform well if we experience weaker economic growth or unexpected inflation, while other holdings such as US small caps can benefit from falling rates.

That’s it for this week. Thank you for watching, and we’ll be back next week for another Market Minute.