Stimulus in Strength
Federal government deficits are often seen as economic stimulus. Typically they occur in weak economic environments, not in periods of strong growth such as we are now enjoying. Deficit spending would boost an economy with high unemployment but its effects on the current economy with its low unemployment rate may accelerate inflation.

  • Deficit spending has typically tracked the unemployment rate. As unemployment worsens, deficits get larger and vice versa. Today, however, we see the opposite dynamic: increased deficits and decreased unemployment.

  • Meaningful stimulus, driven in part by tax cuts, may cause higher inflation now that the economy is at or near full employment.

  • Investors should understand that economic growth may accelerate (see Alger On the Money “Growth Spurt Underway​”) based on this stimulus and prepare themselves for higher interest rates. In such an environment, bank stocks may benefit over bond-like equities, such as utilities, real estate and consumer staples.​

The views expressed are the views of Fred Alger Management, Inc. as of May ​2018. 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.

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