Alger recently hosted a webinar on Tariffs, AI & Innovation and the Opportunity in Long/Short Equity featuring Alger CEO and CIO Dan Chung, CFA. During the webinar, Dan shared his outlook for the markets and provided the case for investing in long/short equity.
Below are a few of the major takeaways from the webinar.
Liberation Day and Economic Outlook
Liberation Day on April 2, 2025, marked the launch of a significant tariff plan by the Trump administration, leading to a substantial market sell-off. The tariff plan caused a trade standoff between the US and China, though both countries eventually backed down, after meeting in Geneva to lower tariff levels for each. A 90-day pause was instituted for the reciprocal tariffs resulting in a market rally and trade deals being announced. We feel that the economic outlook remains strong with S&P earnings growing by 10% in the first quarter.
As of the end of April 2025, the National Consumer Price Index (CPI) was at 2.3% (Source: US Bureau of Labor Statistics) and energy prices have dropped substantially, which also benefits lower-income Americans. Discussions on tax cuts and rate cuts are ongoing, including proposals to make tips and overtime income tax-free with the aim of neutralizing the headwind from tariffs. The extension of the tax cuts as well as lower energy cost could be a tailwind to continued US consumer strength.
Discussions on lowering pharmaceutical prices through most favored nation pricing are also ongoing. High healthcare costs have been a significant driver of inflation over the past 20 years and healthcare services and drug prices have tended to grow above cost of living and inflation rates. It will be important to see how these proposals for significantly lower prescription medicine costs as well as a potential extension of the tax bill, will benefit Americans.
Artificial Intelligence
AI remains a major investable theme and we’ve seen no disruption caused by recent volatility. Growth trends for new, dynamic technologies often continue or even accelerate during recessions, offering better, cheaper, and more efficient solutions. At Alger we believe Artificial Intelligence (AI) is a resilient and compelling long-term growth theme, especially during periods of market disruption. Despite recent volatility, many AI-related companies, particularly hyperscalers, reported strong Q1 earnings. This underscores continued enterprise investment in AI infrastructure. The broader opportunity in AI is seen as part of a set of secular trends, including aging demographics, e-commerce, digital advertising, reshoring and genomics. These themes are expected to drive innovation over time, making AI a strategic area for investment even amid short-term market fluctuations.
Market Prediction for Interest Rate Cuts
At Alger we believe market predictions for Federal Reserve interest rate cuts have anticipated too many cuts, too early in the year. Currently, we feel interest rates are appropriate for the economy. Despite some uncertainty due to tariff trade issues, the strong economy is expected to continue, in our view. The risk of recession has significantly decreased, and the current rate levels allow the Federal Reserve to cut rates if necessary, in the future.
Historically, the economy has thrived with similar or higher rates, such as in the early 1990s and post-9/11 recovery. The issues leading to the 2008 financial crisis, such as irrational lending and leverage in the housing market, do not appear to be present today.
Commercial real estate (CRE), particularly commercial office buildings in New York, has been overvalued and is now facing significant write-downs. Private credit funds involved in this sector may face substantial losses. However, investments in growth stocks have minimal exposure to commercial banking and REITs. We believe investors should be cautious about their exposure to CRE and banks involved in commercial lending, as these loans are being rolled over at current rates and may not be sustainable for under-occupied office buildings.
Alger Dynamic Opportunities Fund
Alger’s over 60-year history as a boutique asset manager specializing in growth investing allows us to be opportunistic during times of disruption, economic, geopolitical, or otherwise. During market sell offs, we believe it may be a good time to add to or initiate new positions in companies that are tied to secular growth themes, especially those experiencing positive dynamic change like AI.
Alger Dynamic Opportunities Fund seeks long term capital appreciation and lower volatility by primarily investing in long and short positions in equity securities. We implement a strategy that typically has net exposure ranges from 30% to 65% and gross exposure ranges from 80% to 140%.
