Introduction to the Market Minute
The Morningstar Market Minute is a video series that explores markets, the economy, and other notable trends every Friday lunchtime. Vesna Peroska, a portfolio manager from Morningstar Investment Management, welcomes viewers to this week’s edition.
Market Updates and Trends
It’s been a busy week with data releases, policy announcements, and equity market highs. Markets have priced in rate cuts in the US and domestically after recent central bank announcements. Despite these developments, persistent inflation remains a risk to long-term rates and the role of duration in a portfolio. Equity markets have continued their trend higher, with the US equity market reaching another all-time high this week, supported by passive flows and sentiment.
US Equity Market Performance
The US equity market is up around 1% for the week, with health care stocks outperforming the broader market in a relief rally, higher by 5% for the week. This comes after concerns surrounding US drug pricing and tariff policy abated, following an agreement between Pfizer and the US allowing patients access to discounted prescription drugs through a new federal website.
Emerging Markets and Sector Performance
Emerging market equities are also up about 2%, with Korea and China tech stocks performing well, returning over 6% on renewed optimism around AI. However, the energy sector has shown weakness this week in reaction to potential increased OPEC supply and a US government shutdown. The Morningstar investment process has seen value in health care stocks and has been positioned accordingly.
Global Economic Outlook
Globally, the economic outlook remains uncertain, with the Australian central bank, the RBA, leaving the cash rate steady at 3.60%. The board noted that recent data suggested inflation could be higher than previously forecast. Australian equities are almost 2% higher for the week, with resources and banks delivering strong returns.
Investment Strategy and Conclusion
As some equity markets continue to reach new highs and valuations look tight, it’s reasonable to be cautious, as valuations are a strong indicator of future returns. However, this trend higher in markets can continue, especially where supported by passive flows. The investment strategy remains invested, allocating to better-valued areas of the market, such as emerging markets, healthcare, and consumer stocks, while also considering the role of diversifiers across multi-asset portfolios.
Conclusion
In conclusion, the market trends and developments this week have been significant, with equity markets reaching new highs and emerging markets showing promise. The investment strategy remains focused on allocating to better-valued areas of the market and considering the role of diversifiers. As the economic outlook remains uncertain, it’s essential to stay informed and adapt to changing market conditions. By staying invested and diversifying across asset classes, investors can navigate the complexities of the market and potentially achieve their long-term investment goals.
