Gaining in a Slowdown?
Goodbye, peak growth. Hello, equity gains? It may not make sense at first blush but slowing economic growth can, and often does, coincide with positive equity returns.​

 


  • As fiscal stimulus wanes and trade issues continue to provide a headwind to growth, the momentum of the U.S. economy is expected to slow in 2019. Consensus estimates of GDP growth project a deceleration of about half a percentage point relative to the nearly 3% growth in 2018.

  • But decelerating economic growth does not necessarily mean weak equity returns. In the past 35 years, there have been 15 years when U.S. GDP growth materially slowed, with the vast majority generating positive U.S. stock returns. Relevant examples include 1995, when the economy slowed after Fed tightening while earnings grew strongly and U.S. stocks posted solid returns, as well as 2016, when economic growth slowed and stocks posted solid, albeit varied, returns. ​​

  • Returns were negative during slowing economic growth only when accompanied by a recession (1990, 2000/2001 and 2008). If the slowing economy is able to avoid recession, history suggests that U.S. equities can indeed achieve gains.

  • Looking at the big picture, it is easy to see that equities have mostly gained in the past and may continue to benefit investors over the long term (see Alger on the Money “Stocks for the Long Term?​”).


The views expressed are the views of Fred Alger Management, Inc. as of January 2019. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.

Risk Disclosure: Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Many technology companies have limited operating histories and prices of these companies’ securities have historically been more volatile than other securities, especially over the short term. Technology companies may also face increased competition, government regulation, and risk of obsolescence due to progress in technological developments.

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