Jan 15, 2019 - Economy & Business

Slower growth doesn't mean stocks have to fall

Dion Rabouin, author of Markets
Expand chart
Reproduced from FactSet and Alger; Note: Material slowing of GDP is defined as 50 bps or more of a negative change in the annual real GDP growth rate; Chart: Axios Visuals

Economists have been wearing out their keyboards over the past couple of months writing down expectations for U.S. and global economic growth.

Reality check: Alger chief investment officer Daniel Chung and director of strategy Brad Neuman point out that slower growth does not necessarily mean weak equity returns.

Chung and Neuman note:

  • "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."
  • "Returns were negative only when accompanied by a recession (1990, 2000/2001, 2008)"

Reading the graph: Of the 15 times in the last 35 years that year-over-year GDP growth has fallen by at least 50 basis points, or 0.5%, the S&P has still risen in 11 of the 15 years. The gains have been as high as 38% in 1995 and 32% in 2013.

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