Mark LaMonica: Welcome to another edition of Market Minute. Another big week in markets. We have Michael here to take us through everything that’s happening. Let’s start with Iran. It was not a dramatic conclusion to the war, but apparently it is over. How should investors look at this?

Michael Malseed: Yeah. So I guess the news that there’s a peace agreement that’s looking to be signed between Iran and the US has been taken very positively. The most material impact of that is the Strait of Hormuz being open for all traffic. So we’ve seen the oil price fall on the back of that news. Certainly we want to see some numbers flowing through to global oil supply coming through in the next few weeks.

So that’s been taken very positively.

Mark: And oil and inflation have obviously been linked as prices went up. How do you think this is going to impact inflation, something we’ve been really worried about? Does this solve that problem or not yet?

Michael: Yeah. So it had a big impact on inflation in the last few months. We all know the price at the bowser has hit us all. We saw it in the US CPI numbers last week, which came out for May and were very high, including energy costs. Stripping out energy, they were still up a bit on the previous month.

So certainly there’s that underlying inflation expectation. But with energy prices decreasing, it’s an input into a lot of factors of production. So we hope to see inflationary pressures easing on the back of this news.

Mark: And what do you think central banks will do based on this? We’ve obviously seen the RBA raising rates recently, a lot of other central banks holding. What’s going to happen going forward?

Michael: Yeah. So we saw the RBA meet today and they kept rates on hold. I think it’s going to be a little bit of a wait-and-see approach for them to see evidence of core inflation coming back on factors beyond just oil prices. Oil prices will certainly help, but there are other factors in the economy that have been pushing inflation higher.

So you couldn’t rule out rate increases later in the year in the back half, but I think it’s going to be a little bit of a wait-and-see approach from central banks from here.

Mark: And then the big news at the end of last week is we now have the world’s first trillionaire. Unfortunately it isn’t either of us. But of course I’m referring to the SpaceX IPO. And I guess speaking broadly, we’re back to this AI theme. We saw the SpaceX stock bounce significantly after the IPO. How are you viewing this and valuations in the market?

Michael: Yeah. So undoubtedly the valuation of SpaceX, pardon the pun, is astronomical in traditional terms, and we’d be cautious about that and the valuation of upcoming AI IPOs. They’re burning a lot of cash. They’re spending a lot of capital. And a lot of the payoff isn’t going to be until five or six years away on the best forecasts.

So caution is warranted. They are big, so they’re going to take up a big part of the index over time. What we’re seeing is AI-adjacent companies making up a bigger and bigger proportion of index returns. And they’re trading at quite high valuations now.

So the markets do look expensive on this thematic trade. But we like to look under the hood of markets, trying to find opportunities that have been overlooked but are still strong on a fundamental basis.

So we’re still finding pockets of valuation opportunities to invest in.

Mark: Yeah. What are some examples of that? What is being left behind and where could there be opportunities that investors aren’t paying attention to?

Michael: Yeah. So more traditional sectors like healthcare and consumer certainly don’t have that AI halo around them. Also, looking at some of the software names that got sold off significantly earlier in the year on the belief that AI could completely disrupt or replace their businesses.

Some of them globally have been sold off significantly, and there’s probably a reasonable margin of safety in some of those names. There are pockets of opportunity where we think they’ve been oversold and are providing reasonable entry points from here.

Mark: Okay, great. Well, we’ve covered a lot of ground, so we’ll leave it there. But thank you very much, Michael.

Michael: No worries. Thanks, Mark.