Transcript:

Hi, I’m Noah Kaplan, Associate Portfolio Manager at Morningstar Investment Management. Welcome to the Morningstar Market Minute—a weekly video series where we explore markets, the economy, and other key trends every Friday lunchtime. Each week, we’ll walk through the most important developments, share Morningstar’s perspective, and outline how our portfolios are positioned in the current environment.

This week, President Donald Trump made headlines once again with a surprise 30% tariff threat on two of the US’s largest trading partners: Mexico and the European Union. While the EU remains prepared with retaliatory tariffs, leaders from both regions emphasized their willingness to negotiate and maintain open trade lines. European equity markets reacted negatively to the announcement, while US markets were largely unfazed and continued trading near all-time highs, indicating exhaustion with the ongoing tariff uncertainty.

Fixed income markets, however, were not immune to the headlines this week. The release of US CPI data showed inflation rising to 2.7% year-over-year, exceeding market expectations and giving the first clear signs that tariffs are beginning to impact consumer prices. The surprise print drove a sharp repricing in interest rates, with US 10-year Treasury yields recording their largest single-day increase since Liberation Day. All of this came against an already uncertain backdrop as markets struggle to parse Trump’s repeated pressure on Federal Reserve Chair Jerome Powell to cut rates—or potentially resign.

We continue to hold a neutral outlook on US rates but expect volatility to persist in the near term. Predicting short-term rate moves is notoriously difficult and we prefer to remain anchored to our long-term rate expectations, while taking an active approach to take advantage of volatility as it arises.

Turning back to equity markets, our focus this week was on second-quarter earnings from the major US banks. Results were broadly strong, underpinned by solid revenues from dealmaking and trading. Combined with positive results from the Fed’s latest stress tests, sentiment toward the sector has turned increasingly optimistic. We see signs that optimism is becoming excessive as valuations have begun running ahead of fundamentals. We have decided to take this opportunity to begin exiting our direct holdings in Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC).

That’s all for this week. Thanks for tuning in, and we’ll see you next Friday for the next Market Minute.