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.

Today, we’re looking at the UK’s autumn budget, Alphabet cementing its AI comeback, and the ECB’s warning about stretched market valuations.

But first, our number of the week…

$16 trillion

That’s the current level of assets under management in private markets, according to Citi’s recent extensive report on the industry. Private capital AUM has increased by about $10 trillion in just a decade, highlighting rapid growth in a relatively short period of time.

Sidekick Takeaway: With huge volumes of capital now flowing into private markets, the sector has changed markedly from previous years. Notably, the Citi report described how managers are seeing illiquidity premiums shrink as private asset trading grows increasingly popular.

Only have a minute to read? Here’s the TL;DR:

• In the UK’s autumn budget, Chancellor Rachel Reeves announced £26 billion in tax increases, including ‘stealth taxes’ from frozen income bands and higher levies on investment income. While the budget provides a £22 billion fiscal buffer, it’s unlikely to solve the UK’s long-term growth challenges. 
• Following an impressive comeback, Alphabet has emerged as a rare AI ‘triple threat,’ competing across models, chips, and cloud infrastructure. In fact, a prospective chip deal with Meta could see Alphabet rival Nvidia. The company is on pace to eclipse a $4 trillion valuation, potentially making it the third firm to reach that milestone.
• The ECB warned that US tech sector valuations are becoming ‘stretched,’ driven by ‘fears of missing out,’ joining the IMF and BoE in raising concerns. However, the ECB did not conclude that the AI boom constituted a bubble, noting significant differences in profitability and earnings growth from the Dot-Com era.

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 Bill Comes Due: Reeves Hikes Taxes in Autumn Budget

For months, Chancellor Rachel Reeves has had to walk a narrow financial tightrope.

On one side, backbenchers and voters are frustrated with Labour’s continued spending cuts and tax hikes.

On the other, the UK’s deteriorating public finances mean that such measures may be necessary to avoid fiscal catastrophe.

This week, Reeves released an autumn budget that appears to appease both sides – for now.

The budget came with a painful £26 billion worth of tax hikes. But it does achieve a large fiscal buffer while avoiding some of the most drastic measures.

What’s changing: Stealth taxes, mansion taxes, and more

In the weeks leading up to the budget, Labour floated the possibility of raising headline rates of income tax for the first time in half a century.

But in the end, Reeves opted for a wider collection of smaller measures to raise the revenue she needs:

• Although headline income tax rates are not changing, Reeves froze income bands through 2031. This ‘stealth tax’ will pull people into paying higher tax rates as salaries rise.
• The budget also institutes a ‘mansion tax’ on properties worth over £2 million, the vast majority of which are in London.
• Finally, Reeves also elected to raise rates of dividend, savings, and property income tax by two percentage points each.

Notably, the budget also caps the value of pension contributions that can be made free of National Insurance taxes via salary sacrifice at £2,000. That cap could impact savings strategies for high earners. 

Sidekick Takeaway: While the autumn budget did grant Chancellor Reeves a fiscal buffer of approximately £22 billion, it’s unlikely to be enough to fix the UK’s public finances on its own. Any meaningful long-term solution needs to address the country’s sluggish economic growth.

We’ve written a full white paper on the topic. If you want to dig into the Budget in more detail, and understand what it means for your money, you can read the full white paper here: 

Read here: https://mcusercontent.com/3903d15d7707036c20f1d7e18/files/22c12c74-ff3d-1009-fcb7-3b47a57298b6/White_Paper.pdf

‍

The Comeback Kid: Alphabet’s AI Triple Threat

Previously, Alphabet had been seen as something of a laggard in the AI race.

Despite the company’s prowess in Silicon Valley, Alphabet’s early AI models were widely viewed as inferior to competitors. Unsurprisingly, its share price struggled to keep up.

But following model improvements and new chip developments, that perception has almost entirely faded.

Alphabet has now begun to rival firms like OpenAI and Nvidia, cementing an impressive comeback that many investors doubted was possible.

Alphabet’s triple threat: Models, chips, and cloud

One reason that Alphabet stands out in the AI race? The company is a rare ‘triple threat’ capable of competing in nearly every aspect of the industry:

• While early versions left something to be desired, Google’s latest Gemini models have been met with rave reviews, with some analysts seeing them as superior to ChatGPT’s models.
• Meanwhile, Alphabet has emerged as a rare competitor to Nvidia, with Meta in talks to use Google’s advanced ‘tensor processing’ chips for a new AI project.
• Finally, Alphabet continues to be one of the largest providers of computing power for AI firms, with a 13% market share in the global cloud industry. 

So far, Alphabet hasn’t taken a clear lead in any one aspect of the AI sector. But the ability to compete across all of them is a rare feat.

Sidekick Takeaway: As Alphabet has cemented its comeback, the company is on pace to soon eclipse a $4 trillion market valuation. That would make Alphabet just the third company to achieve such a milestone, placing it within sight of market leader Nvidia. 

‍

Reality Check: ECB Flags Risks of AI Exuberance

In general, central banks steer clear of commenting on the stock market.

Not only does their focus lie on financial stability and interest rates, but any warnings risk spooking investors.

That traditional reticence is why this week’s comments from the ECB were so surprising. 

In one of the bank’s reports, policymakers noted that valuations in the US tech sector are becoming ‘stretched,’ driven by ‘fears of missing out.’

The ECB joins a growing chorus of cautious institutions. The IMF and BoE have also alluded to similar risks in recent months. 

ECB’s warning: Is the boom a bubble?

Notably, the ECB didn’t go so far as to call the AI sector a bubble.

In fact, the bank noted significant differences between the current AI boom and the historical Dot-Com bubble:

• The report acknowledged that today’s companies feature ‘high profit margins, strong earnings growth, little debt and diversified underlying businesses beyond AI.’
• In contrast, previous tech bubbles were driven by investor hype over loss-making startups.
• Nonetheless, the ECB fears that sharp, correlated price movements could occur if AI optimism begins to fade.

The bank’s warning is unlikely to deter investors immediately. But it does indicate a growing chorus of concerned institutions over rapid valuation growth in the US tech sector.

Sidekick Takeaway: Although stock market performance has historically been seen as disconnected from the mission of central banks, that view has begun to change in recent decades. Market volatility can have real impacts on consumer spending and business investment, leading monetary policy officials to keep a closer eye on stocks.

‍

Notices

Sidekick Money Ltd is a company registered in England and Wales (No. 13882980). Sidekick Money Ltd is authorised and regulated by the Financial Conduct Authority (FRN 984829). Our address is 21-33 Great Eastern St, London, EC2A 3EJ.

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.