ALTERNATIVE MARKETS UPDATE – MID JANUARY 2025

​The year 2025 did not start well for financial markets. With a positive outlook for the first time in the post-Covid era, optimism was justifiably high. While only two weeks do not provide much information for the whole of 2025, they do show a relatively low level of confidence among market participants. The outlook for 2025 is based on improving market conditions in most areas. Reasonable inflation and still historically strong labour markets provide a solid foundation. The change of leadership in the US is also expected to improve the business environment. In addition to government support, central banks will cut interest rates, providing further support to businesses. Geopolitical tensions, which significantly increased volatility last year, are also expected to improve. It is important to note that these are only a few examples that point to a strong 2025.
This is a stark comparison to the outlooks of previous years. Since Covid-19, almost every year has seen outlooks with almost apocalyptic consequences, especially around potential recessions. Perhaps it is precisely this overall positive outlook that makes the negative news shine more brightly. In this sense, any disappointment could send markets tumbling. Part of the recent decline in markets was triggered by the Fed's latest rate cut, in which the Fed stated that they would cut rates less than initially expected. Another factor was higher than expected US inflation data. This led to a general sell-off in risky assets, such as cryptocurrencies and equities, as shown in Figure 1. The impact on the performance of Bitcoin and the S&P500 has so far been limited due to a slight correction in mid to late December.

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RESEARCH PERSPECTIVE VOL. 243 January 2025 Alternative Markets Update The year 2025 did not start well for financial markets. With a positive outlook for the first time in the post-Covid era, optimism was justifiably high. While only two weeks do not provide much information for the whole of 2025, they do show a relatively low level of confidence among market participants. The outlook for 2025 is based on improving market conditions in most areas. Reasonable inflation and still historically strong labour markets provide a solid foundation. The change of leadership in the US is also expected to improve the business environment. In addition to government support, central banks will cut interest rates, providing further support to businesses. Geopolitical tensions, which significantly increased volatility last year, are also expected to improve. It is important to note that these are only a few examples that point to a strong 2025. This is a stark comparison to the outlooks of previous years. Since Covid-19, almost every year has seen outlooks with almost apocalyptic consequences, especially around potential recessions. Perhaps it is precisely this overall positive outlook that makes the negative news shine more brightly. In this sense, any disappointment could send markets tumbling. Part of the recent decline in markets was triggered by the Fed's latest rate cut, in which the Fed stated that they would cut rates less than initially expected. Another factor was higher than expected US inflation data. This led to a general sell-off in risky assets, such as cryptocurrencies and equities, as shown in Figure 1. The impact on the performance of Bitcoin and the S&P500 has so far been limited due to a slight correction in mid to late December. Figure 1: Price Development of the S&P 500 and Bitcoin Since November 2024, Source: Investing, Standard & Poor’s, January 2025 The change in interest rate expectations and the subsequent disappointing inflation data added further concerns for fixed income securities. While the Federal Reserve has cut interest rates twice since November 2024 to 4.3%, yields have reacted very differently. Short-term US Treasury yields barely moved despite the 50bps cut. 1-year US Treasuries fell by just 4bps. The more pessimistic view of a potentially adverse inflation trajectory is clearly reflected in the longer maturities for the US. As shown in Figure 2, the Federal Fund rate fell by 25 bps over the past month, while the yield on 10-year US Treasuries rose by more than 60 bps. A move of almost 1% in Treasury yields in a single month demonstrates the fragility of the markets at present. Figure 2: Comparison of 1-Year, 10-Year US Treasury Yields and Effective Federal Fund Rate Since November 2024, Source: Federal Reserve Bank, Investing, January 2025 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates and Tallinn in Estonia. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 2nd February 2024, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 62.4 billion. 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