Equity markets: The S&P 500 rose by 11.24% quarter-over-quarter, while the NASDAQ composite rose by 13.56%. Key driver to this rise was the market has priced in the end of this Fed hiking cycle, with key Treasury bond yields retreating, cost of capital retreating, and valuation multiples rebounding across equity assets.

Fed policy outlook: as we have written over the past few quarters, the Fed somewhat pegs its interest rate to be slightly higher than inflation rates. As inflation rates have decisively fallen to the 2-3% range, below the Fed’s key policy rate of 5.25%, this allowed the Fed to pause and begin considering cuts. The market is pricing a Fed cut as early as March, but it’s better to be conservative and not expect a rate cut till 2024 2H. Further to this thinking is the Fed likes to stay behind the scenes in an election year.

Small cap stocks and & tech IPO market: as the major indexes and large and mid cap stocks have stabilized, the small cap index as measured by the Russell 2000 has also begun to rebound. Small cap stocks are more sensitive to rates as they’re smaller companies and thus more affected by macro headwinds. A higher confidence in a US soft landing has led to the Russell 2000’s outperformance in recent months. In this context, a few tech companies such as ARMS and Instacart decided to test the IPO market, and these IPOs have more or less defended their issuance prices. 

Public to private market transmissions: historically private markets lag public markets sentiment by 6 to 12 months. As public market sentiment has turned in Q4 2023, private market activities have picked up as well and should continue to pick up in 2024-25.

IPO pipeline: several late-stage venture-backed companies from Rubrik to Klarna are in the pipeline of preparing to go public.Bankers we have spoken with in recent months are suggesting more private companies are preparing for IPOs between 2H 2024 and 2025.

Impact on private markets: these liquidity events are expected to allow fund managers to return capital to LPs who could then recycle this capital back into the ecosystem. Lower Fed funds rates are also expected to make fixed income investments less attractive, leading to an increased allocation in equity funds.

Secondaries activities: one area in venture where LPs have been allocating more to is secondaries by which fund managers are purchasing private market securities at low multiples. We expect these prices to remain compressed in 2024.