In 2024 credit became exciting again. Higher base rates, combined with healthy company fundamentals and strong consumer spending, meant that credit-focused investment managers were able to deliver robust performance without needing to take on much additional credit risk.¹

Looking ahead to 2025, ample investor liquidity, continued appetite for yield, and general optimism around the U.S. economy make the broader credit markets appear expensive. Idiosyncratic opportunities to seek alpha will persist, though. In this research note we highlight macro themes that we believe could lead to interesting investment opportunities. We also provide a few supporting case studies from our credit manager partnerships and a brief appendix covering the foundations of investing in distressed debt. Key points are summarized below. (Please see our full length report for accompanying charts and data sources, as well as important disclosures).

November’s financial markets painted a picture of robust economic resilience, with the S&P 500 triumphantly crossing the 6,000-point milestone. Consumer Confidence hit a 10-month peak, bolstered by optimistic job market perceptions and strong retail sales that demonstrated remarkable economic strength despite lingering uncertainties. Inflation settled at a modest 2.6% year-over-year, with Federal Reserve Chair Jay Powell describing the economy’s performance as “remarkably good” and signaling a measured approach to potential interest rate adjustments. Global markets experienced notable shifts, with the US Dollar strengthening and international equities recalibrating in response to potential policy changes under a new administration.

As we head into the holiday season, Pathstone CEO Matt Fleissig and President Kelly Maregni share some brief reflections on 2024 and their excitement for the year ahead, in the video below: