Fred Alger Management is looking to reassure clients and all investors in general that the economic picture is not as grim as it may seem. The New York City-based asset manager on Thursday issued a news release saying that that the relative strength of the U.S. economy will lead to an abatement of the pain in the market -- and soon.
Fred Alger Management, a leading
asset manager, believes the fundamental strength of many companies, of the
global economy, and of the U.S. economy is a powerful sign that what lies
ahead for the stock market is likely to be another round of gains rather
than a sustained period of declines, adding that it is likely the panic
over the meltdown in the sub-prime mortgage space will abate -- and soon.
Alger asserts that market fundamentals and economic fundamentals have
diverged as of late, and in fact, economic news -- especially global
economic news -- has been getting better even as the stock market has been
"GDP growth is strong mainly due to consumer spending, capital
expenditures by companies, and U.S. exports that have all been better than
expected," explains Zachary Karabell, chief economist and executive vice
president at Fred Alger. "In addition, job growth has moderated. While this
is hardly good news in the real world, it is positive news for the overall
economy insofar as it keeps the threat of inflation contained."
Alger stresses that the recent sell-off has also obscured the fact that
earnings growth has been significantly better than Wall Street anticipated.
At the beginning of the reporting season, for example, consensus
expectations were for about 4.2% growth; now, with most companies having
reported as of mid-August, the figure looks to be at least 8%.
"Once again, companies have been outperforming for the same reasons:
global growth and low-ball estimates, said Dan Chung, Fred Alger's CEO and
Chief Investment Officer. "Market pundits have been notably slow to adjust
their expectations and, with the current swoon, the result has been a
continued accentuation of the negative."
And while the bottom-line of many Wall Street firms and hedge funds,
not to mention several hundred thousand home owners, has been directly
impacted by this deep sense of unease due to the sub-prime mortgage market,
Alger notes that some voices -- including Fed chairman Ben Bernanke -- have
pointed out that the actual size of the sub-prime and related fallout is
perhaps 1% of the overall U.S. economy (approximately $100 billion). Even
if that figure is low, and even if exposure due to derivatives and other
financial instruments is considerably greater, it is still dwarfed by the
$55 trillion net worth of U.S. households.
Nevertheless, Alger urges investors to be very selective when
evaluating the financial sector, and to look for companies benefiting from
an increase in volatility that have limited direct exposure to sub-prime
credits. They anticipate increased housing defaults and overheated real
estate in many markets over the next two years; however, they believe these
problems do not have to translate into a bear market. They remind investors
that there have been similar pullbacks each year for at least the past
three years, and each time, the markets came roaring back.
"We believe that this is very much a mid-cycle slowdown which is
precisely what the markets need to continue advancing in the medium to long
term," say Mr. Chung and Mr. Karabell. "The fact remains that even with
this August swoon, the markets are up for the year. We believe these market
sell-offs offer excellent opportunities to add or increase positions in
growth companies whose opportunities are, in fact, just beginning."
About Fred Alger Management
Founded in 1964, Fred Alger Management, Inc. is a leading asset
management firm employing a bottom-up approach in its attempt to identify
the fastest growing companies in their respective sectors. For more than 40
years, Alger has followed a rigorous process, a consistent approach, and a
core philosophy: find dynamic, innovative companies creating change and
invest in them. Fred Alger Management offers investment advisory services
to separately managed, sub-advised and wrap accounts. Fred Alger & Company,
Incorporated offers mutual funds as well as institutional funds for defined
benefit and defined contribution plans. For more information including a
prospectus containing other information about the funds, please visit
http://www.alger.com. Before investing, carefully consider a fund's
investment objectives, risks, charges and expenses. Read the prospectus
carefully before investing.
The views expressed are the views of Fred Alger Management, Inc. as of
August 16, 2007. 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.
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 price of growth stocks tend to be higher in relation
to their companies' earnings and may be more sensitive to market, political
and economic development.
CONTACTS: John Patteson
Kekst and Company
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