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 unpacking custom indexing, DeepSeek’s new AI, and US economic growth. 

But first, our number of the week…

94%

That’s how much prices for Arabica coffee futures have climbed over the past 12 months. Rising demand among developing countries and a string of bad weather events have combined to create a coffee supply crunch.

Sidekick Takeaway: If you’ve noticed the price of your daily coffee rising, you’re not imagining things. ‘Make your coffee at home’ is often mocked as financial advice, but it may not be such a bad idea these days.

Now to our main stories…

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

• Sidekick’s custom indexing is now live, allowing you to tailor your exposure to the S&P 500 by removing specific stocks or sectors. Explore custom indexing on the Sidekick app to manage risk or build a portfolio that reflects your values.
• DeepSeek stunned the tech world with their cutting-edge R1 AI, which reportedly took just $5M to train. There are still lots of unanswered questions, however, including the accuracy of the $5M number and whether DeepSeek co-opted OpenAI training data.
• Q4 US GDP data came in at 2.3%, validating the Fed’s decision to be cautious on rate cuts. Despite complex macro narratives, the US investing environment remains fundamentally sound, with a solid labour market and strong earnings growth.

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.

‍

Express Yourself: Introducing Custom Indexing From Sidekick

This week, we launched our latest product feature: custom indexing. Custom indexing allows you to take a standard index like the S&P 500 and tailor it to better suit your financial goals.

Why consider custom indexing? There are two main reasons: managing your risk exposure and reflecting your personal values.

Custom indexing can manage risk

Let’s say you work for a Big Tech firm, like Apple or Google. It’s common for these companies to offer equity participation plans, meaning you may already hold a large chunk of shares in your employer.

If that’s the case, it probably doesn’t make sense to have additional exposure through your individual investment accounts. After all, diversification is one of the core principles of smart asset allocation.

Alternatively, imagine that you’re a financial professional whose earnings are tied to the health of the overall financial sector. Removing financial companies from your custom index can prevent your investment performance and earning potential from being too correlated with each other.

And it’s not just about money – custom indexing can also help you build an investment portfolio that you're proud of.

Custom indexing can reflect your values

Our custom index offering allows you to easily remove categories of companies that don’t match your personal values, including:

• Polluters, like oil and gas companies
• Companies that test on animals
• And ‘sin stocks,’ like gambling platforms or alcohol companies

It’s also easy to remove individual stocks that you may no longer feel comfortable investing in – such as Tesla.

The ultra-wealthy have been tailoring their portfolios like this for years, both to manage their risk and to shape the world around them.

Today, Sidekick is proud to make custom indexing far more accessible and affordable. You can start customising the S&P 500 directly on the Sidekick app.

‍

Seeking Answers: DeepSeek Shocks Big Tech

The AI arms race accelerated this week with the unveiling of a new model from Chinese company DeepSeek. R1, as the model is named, isn’t necessarily more powerful than competing LLMs – but it could be much, much cheaper.

DeepSeek claims that R1 took just $5 million to train, compared with the $100M+ price tags common to Big Tech LLMs. What’s more, R1 was trained on Nvidia chips considered far less advanced than what US companies can access. 

Despite that, R1 has been able to go toe-to-toe with models like OpenAI’s o1 and Google’s Gemini. Following the news, Big Tech fell sharply, with Nvidia stock losing $589 billion in value in just one day. 

Why is this such bad news for Big Tech?

One of the core assumptions underlying Big Tech’s market growth has been that building and training advanced AI models is a capital-intensive endeavour:

• OpenAI’s latest model reportedly cost more than $500 million to train
• Big Tech has been spending record amounts of capital on AI-related infrastructure, totalling $224 billion in 2024
• Investors assumed that this spending created a natural ‘moat’ for AI platforms that would be hard for competitors to replicate

But DeepSeek shows that those assumptions might be misplaced. If AI can be commoditised cheaply, Big Tech’s moat might as well be a stream, and high stock valuations could look increasingly dubious. 

There are many unanswered questions, however.

While this news is certainly worrying for Big Tech, investors should be cautious about rushing to judgement. There are significant unanswered questions:

• Analysts at Bernstein have sharply criticised the reported $5M number for R1, arguing that it misses fundamental costs like infrastructure and research: ‘It seems categorically false that “China duplicated OpenAI for $5M” and we don’t think it really bears further discussion.’
• OpenAI is reviewing evidence to see if DeepSeek improperly harvested large amounts of data from the company’s models, potentially indicating that R1 may not be as original as it seems
• Finally, while cheap AI may be bad news for Big Tech, it could be good news for the rest of the economy. While tech indexes fell, the industrial-heavy Dow Jones continued to steadily rise

DeepSeek’s R1 tech is no doubt impressive. In the coming weeks, however, we expect to learn more about how innovative this tech truly is, especially if OpenAI’s claims hold merit. 

With such limited information, it’s far too early to decide that Big Tech’s moat has evaporated.

‍

Going Steady: US Economy Continues Growth 

The US economy continues to chug along, with the first estimate for Q4 2024 GDP growth coming in at 2.3%. 

Although that figure is slightly below expectations, it caps a strong year for the US economy. For 2024 as a whole, US GDP grew 2.5%, far ahead of forecasts at the start of the year.

There are a few pockets of weakness, including a recent consumer confidence survey that indicated jobs are becoming more scarce (backing up hard labour market data).

Overall, however, it’s clear that the Fed doesn’t need to rush in cutting rates – for now, slower is better.

Fed can be patient on rate cuts

On Wednesday, the Fed chose to keep rates steady:

• Chair Jay Powell indicated that the Fed will be patient in cutting rates, stating that “[w]e do not need to be in a hurry to adjust our policy stance”
• Corporate earnings growth is estimated at 12.7% in Q4 2024, indicating that businesses don’t need much extra help right now
• Finally, a core inflation rate that remains stubbornly high also promotes caution 

The main takeaway from this data is that, despite macro narratives surrounding AI, tariffs, and political uncertainty, the US investing environment remains fundamentally sound.

It’s easy for investors to get lost in a sea of noisy information, but the underlying data should always speak the loudest.

‍

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.