Market Pulse
Saturday, January 4, 2025
Welcome to this week's Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.
Our three stories this week:
It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
The US economy appears to have significantly exceeded expectations last year. While year-end data continues to trickle in, the economy expanded 3.1% in Q3 2024, well above early forecasts. Unfortunately, however, looming signs of consumer distress indicate that things may be more turbulent in 2025.
US credit card defaults spiked in 2024, with lenders writing off $46 billion in seriously delinquent balances in the first nine months of last year. That’s a 50% increase from the same period one year prior and the highest level in 14 years. Although Q4 data is not yet available, Capital One, the country’s third-largest credit card lender, recently announced that its write-off rate had risen nearly one point year-on-year as of November.
This data is particularly pertinent for the US economy, which is highly reliant on consumer strength to power growth. Personal expenditures account for more than two-thirds of America’s entire GDP. In addition to this consumer data, business figures indicate that companies are also having a harder time servicing their debt, with large bankruptcies rising modestly in H1 2024.
Although these data points are concerning, they may also overstate the level of weakness in the US economy. Crucially, because inflation has been higher than average over the past few years, we should expect nominal write-off levels to rise as people carry higher card balances for the same level of consumption. In fact, US household net worth reached a record level in Q3.
Finally, rate cuts in 2025 should offer both consumers and businesses additional breathing room in the new year. While these data points do indicate an elevated level of economic stress, they are also far from a surefire sign of slowdown.
As companies stay private for longer, investors are increasingly demanding access to the type of world-beating companies and startups that once populated public exchanges. In the UK, this demand has been partially met by Venture Capital Trusts, which are publicly accessible funds that invest in private shares. A new regulatory effort from the FCA, however, could be set to significantly expand access to private shares well beyond VCTs.
Initially announced early last year, the Private Intermittent Securities and Capital Exchange System (PISCES) would offer investors an exchange for unlisted company shares. As Economic Secretary Tulip Siddiq put it in December: “PISCES will be an innovative new type of stock market for trading private company shares... It will give investors the chance to get in on the ground floor of some of the most exciting companies and support the growth of those businesses.”
Due to the risk involved in trading private shares, however, the FCA is still developing the warnings and disclosures that will apply to PISCES. Further, PISCES will initially roll out as a regulatory sandbox, allowing the FCA to monitor the system in practice before finalising the rules. Parliament is expected to introduce legislation to officially launch the exchange by May 2025.
To start, PISCES is not expected to be available to retail participants. Instead, the exchange will be limited to institutions and other sophisticated investors. In part, this is due to the fact that market protections are expected to be much more limited in scope, mandating fewer disclosures by both companies and trading counterparties.
Looking toward the future, PISCES could lay the groundwork for a system that allows all UK investors and savers to access the benefits of allocating a portion of their portfolio to private markets. At Sidekick, we are encouraged by these signs of progress in the UK as we continue to work to unlock the financial advantages of the ultra-wealthy.
The story of Europe’s economy last year was largely one of stagnation. Euro area growth is expected to be just 0.9% in 2024, roughly in line with forecasts but below hopes of a strong recovery. While inflation has fallen from peak levels, it remains stubbornly elevated at 2.6%.
Perhaps one of the best examples of Europe’s troubles in 2024 was France, whose CAC 40 stock market index ended the year down just over 2%. In part, this reflects the French market’s dependence on luxury companies, which have struggled amidst an industry slowdown. But it also reflects modest overall GDP growth and recurring political instability, including December’s government collapse after an historic no-confidence vote.
In contrast, however, the Euro area’s other leading economy showed promising signs of life in 2024. Despite disappointing GDP growth, Germany’s DAX 40 stock market index climbed more than 18% last year. Although automotive companies struggled, gains in energy, technology, and industrial sectors made the DAX Europe’s strongest performer.
In 2025, European growth is expected to remain modest, with revised estimates putting forecasted GDP at just 1%. On the upside, however, consensus forecasts for continuing disinflation should allow the ECB increased flexibility to lower rates. Still, new tariffs under the Trump administration could hinder Europe’s recovery, especially for export-heavy countries like Germany and the Netherlands.
One of the Euro area’s most pernicious challenges has been aligning coordinated monetary policy for countries with disparate economic situations. In 2025, this challenge will only increase the responsibility of national governments to address growth challenges through fiscal policy and competition-friendly regulation. For investors, it would be a mistake to write off the continent as a whole, and attractive valuation levels could lead to opportunities as national policies develop.
Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.
