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Saving Up

When consumers feel confident about their financial situation, they tend to spend more and save less, and vice versa when anxious. Can monitoring savings rates predict future shifts in the broader economy?

Changes in consumption often deviate from changes in income. If consumers are feeling confident about their financial situation, they may increase spending faster than their income growth, thereby reducing their savings rate. On the other hand, if consumers are feeling anxious, they may opt to save more of their earned income. We believe that monitoring these changes in savings rates may provide some insight into potential shifts in consumer spending and how the broader economy may grow going forward.

Chart showing U.S. Personal Savings as a Percentage of Disposable Income
 

  • The long-term historical savings rate in the U.S. has averaged 8.8%, as shown in the chart above. However, the savings rate surged during the pandemic, driven in part by trillions of dollars of fiscal stimulus. Today, we believe that excess savings is drying up and is likely to be exhausted by the end of this year.
  • The savings rate has averaged a relatively low 3.8% since the beginning of 2022 through July 2023. If the savings rate were to rise closer to the historical average of 8.8%, it would imply hundreds of billions of dollars in increased savings.
  • If consumers begin increasing their savings rate and reducing their spending it may create a headwind to retail sales and economic growth and a large drag on the U.S. economy. In our view, such a scenario may be relatively difficult for cyclically oriented industries such as specialty retail and financial services. However, we believe market-share gaining companies with less exposure to cyclical end-markets, such as health care, e-commerce and application software providers, may be better positioned than economically sensitive value stocks.


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The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of September 2023. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global events such as environmental or natural disasters, war, terrorism, pandemics, outbreaks of infectious diseases and similar public health threats, recessions, or other events could have a significant impact on investments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments. Investing in innovation is not without risk and there is no guarantee that investments in research and development will result in a company gaining market share or achieving enhanced revenue. Companies exploring new technologies may face regulatory, political or legal challenges that may adversely impact their competitive positioning and financial prospects. Also, developing technologies to displace older technologies or create new markets may not in fact do so, and there may be sector-specific risks as well. As is the case with any industry, there will be winners and losers that emerge and investors therefore need to conduct a significant amount of due diligence on individual companies to assess these risks and opportunities.

Important Information for US Investors: This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund and ETF shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.

Important Information for UK and EU Investors: This material is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit investors. This material does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorized or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. The original recipient is solely responsible for any actions in further distributing this material and should be satisfied in doing so that there is no breach of local legislation or regulation.

Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries.

Alger Management, Ltd. (85 Gresham Street, Suite 308, London EC2V 7NQ, UK) is authorized and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. FAM and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as sub-portfolio manager to financial products distributed by Alger Management, Ltd.

Important information for Investors in Israel: This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the “Securities Law”) and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law.

Alger pays compensation to third party marketers to sell various strategies to prospective investors.

Fred Alger & Company, LLC 100 Pearl Street, New York, NY 10004 / www.alger.com / 800.305.8547 (Retail) / 800.223.3810 (Institutional)


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ETF Investors

This ETF is different from traditional ETFs.

Traditional ETFs tell the public what assets they hold each day. This ETF will not. This may create additional risks for your investment. Specifically:

You may have to pay more money to trade the ETF’s shares. This ETF will provide less information to traders, who tend to charge more for trades when they have less information.

The price you pay to buy ETF shares on an exchange may not match the value of the ETF’s portfolio. The same is true when you sell shares. These price differences may be greater for this ETF compared to other ETFs because it provides less information to traders.

These additional risks may be even greater in bad or uncertain market conditions.

The differences between this ETF and other ETFs may also have advantages. By keeping certain information about the ETF confidential, this ETF may face less risk that other traders can predict or copy its investment strategy. This may improve the ETF’s performance. If other traders are able to copy or predict the ETF’s investment strategy, however, this may hurt the ETF’s performance. For additional information regarding the unique attributes and risks of this ETF, please refer to the prospectus.

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