Mark LaMonica: Welcome to another episode of Market Minute. I am joined today by Matt. We’re going to talk about a couple of different things, but we want to start with talking about central banks and interest rates. So you know, in the US, Donald Trump was, you know, a vocal critic of Federal Reserve policy. He certainly felt rates should go down.

And then we had an interesting press conference this week. So you want to talk through a little bit about where the Fed is leaning.

Matt Wilkinson: Well, it’s a very interesting point because the new chairman’s come in and he was meant to be a bit of a dove. But they’ve kept rates on hold. And I think that’s a fairly balanced decision. There are certainly some inflation pressures that the US is facing, so they’ve kept rates on hold. Obviously there are macroeconomic events that are still unfolding.

We have actually seen commodity input prices, particularly oil, fall over recent weeks. So I think the Fed is waiting to see what happens. Hopefully for borrowers there, inflation will come down and the Fed could move rates lower. But certainly it’s a wait-and-see approach from their perspective at the moment.

Mark: Let’s turn to Australia. Australia has some of the highest interest rates in the world. The RBA has been raising rates. They did not raise last week, but once again I think their statements indicated that they do not think this inflation fight is necessarily over.

Matt: Yes, a bit like the Fed. And I’ll just come back to the Fed for a moment—the dot plot indicated higher rates in the future. So the RBA is in a similar position in terms of inflation being sticky. However, on the other side of that, the consumer is very negative at the moment.

I know the RBA is certainly weighing up those factors. When you see headlines like we had over the weekend around property prices and auction clearance rates, I think that’s also keeping the RBA a little on the sidelines. But there is an underlying inflation issue that does need to be solved in both Australia and the US.

Mark: All right, so let’s turn to markets. We continue to see—we talk about this a lot—we continue to see this AI narrative play out. And I guess a separation between some of the AI companies, anyone related to AI, and everyone else. How are you seeing markets right now?

Matt: The AI space is fascinating from many perspectives. There is just an enormous amount of money being put into AI infrastructure and data centre spending. It is a significant proportion of US GDP, and I’ve heard some pretty extraordinary estimates around the scale of that investment.

So it’s somewhat divorced from what the Fed is doing. There’s just a massive driver of capital expenditure in that area. It’s fascinating from the perspective of the products many of us are using right now, and it’s fascinating from a future business case perspective that we’re certainly watching.

However, what we’re seeing is that area of the market being bid up extensively. We saw the SpaceX IPO last week as well, and that share price surged, although it has come down a little more recently. We still think those valuations are very stretched, and that’s probably indicative of that area of the market more broadly.

At the same time, we’re seeing pockets of value in other areas, particularly some US consumer and healthcare sectors, just to name a couple.

Mark: How do you think investors should approach this? Maybe you can talk about what you are doing with your portfolios. There are headlines that certainly are not great around the economy and interest rates, but at the same time you’re seeing all these shares continue to go up. That can be very difficult for an investor to navigate.

So I guess the question is: what advice would you give people, and what are you doing with your portfolios?

Matt: The portfolios I particularly look after are the Medalist portfolios and the more SMA-orientated portfolios. We certainly think that the best way forward for long-term investors is to remain diversified—not only from an underlying securities perspective, but also from an investment style perspective.

That helps you stay the course through good times and bad. Macroeconomic conditions will wax and wane over time, and it’s very difficult to predict what those conditions will be over any meaningful period.

So staying the course and remaining invested according to your risk profile is the right approach. From our perspective, it’s about selecting very good managers that can execute within their asset class and blending those managers together across a range of asset classes.