​The Upside of Being Slow
Why has the current economic expansion lasted so long and when will it end? A big part of the answer is the depth of the recession that preceded it and the rate of the recovery thus far. Many economic recoveries have ended after far more growth than the present one, suggesting there may be a long runway of economic expansion now.

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  • Real gross domestic output, a measure of the value of economic output adjusted for inflation, has risen only 15% since the last economic peak that occurred before the Global Financial Crisis in 4Q 2007. This rate of growth is far lower than during previous expansions, particularly given the long length of the cycle. Some of the previous cycles of comparable length have demonstrated mid-double digit growth.

  • Analyzing the duration and magnitude of past recoveries may offer insight into how long and extensive the current recovery may be. The longer this expansion takes to reach prior levels of growth, the more runway it may have for further growth, based on historical norms​.

  • For example, for GDP to rise 35% over the prior peak, as it has in some prior recoveries, the economy would have to grow a solid 2.5%-3.0% annually for five more years. This may potentially bode well for equities.

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.

Risk Disclosures: Investing in the stock market involves gains and losses and may not be suitable for all investors. Growth stocks tend to be more volatile than other stocks, as the prices of growth stocks tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political and economic development.

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