Transcript:

Hi, I’m Dennis Li, Associate Portfolio Manager at Morningstar Investment Management.

Welcome to Morningstar Market Minute, a video series every Friday where we take a quick look at markets, the economy, and how we position our portfolios.

Let’s start with inflation report here in Australia. CPI rose 3.8% YoY in October, higher than expectations and September’s number. That keeps pressure on the RBA and takes the hope of rate cuts off the table. The hotter than expected inflation also sent the 10-year bond yield touching 4.5% again. Aussie equities slightly bounced back this week by 2.5% driven by the Materials and Healthcare sectors.

Turning to global equities, we see market gyrations have continued due to a couple of uncertainties. The first uncertainty is whether the Federal Reserve will deliver a rate cut at its final meeting this year. According to the CME FedWatch, the probability was roughly 50/50 last week, but after some dovish comments from Fed officials, markets are now pricing in an over 80% chance of a December cut. The US stock market has since recouped half of the losses that occurred in November, and bond yields are coming down.

The second uncertainty is around tech valuations. Nvidia delivered another solid result, however the share price has fallen as much as 12% this week after the initial post-earnings pop. It reminds us that while business fundamentals can be exceptional, but when a stock is priced with very little room for error, then if anything does not go as planned, the market will quickly become punitive to the price.

Another worth mentioning is concentration risk. Nowadays, investing passively in the index comes with less of a diversification benefit than many people assume. The top 10 companies now account for more than 40% of total market cap in the US, and many of them the returns are also highly correlated. The problem with high concentration is that if one or more of these names get stumbled, the overall index can experience a painful drawdown.

Our view is that building a robust portfolio, and remaining diversified, is crucial in the current environment.

For our portfolio, currently we’re finding more attractive valuations in the defensive sectors, such as selected names in consumer staples and healthcare.

You can find out more in our Morningstar 2026 Global Outlook Report. Thanks for watching Morningstar Market Minute, and see you next Friday.