Despite the impact the subprime crisis has immediately had on mortgage and other financial services companies—with the financial services sector of the S&P 500 Index declining nearly 22%—U.S. equities, particularly growth stocks, are in a strong position, according to the latest market commentary from Fred Alger.
“From our vantage point, while the fallout from the subprime mortgage mess will be bad on both the consumer economy and the financial system, it will not trigger a systemic crisis either in the United States or globally,” according to the report, “A Time for Growth (Even if it Doesn’t Feel Like it).” Specifically, the authors of the report, Fred Alger Chief Executive Officer Daniel C. Chung and Chief Economist Zachary Karabell, point to strong balance sheets. Revenue at U.S. companies
has grown 10% over the past year, compared to nominal GDP growth of 5%. “Outside of specific sectors directly affected by the mortgage crisis, strong earnings remain the predominant story of companies,” according to the report.
Nonetheless, the price/earnings multiples of these companies have contracted, while those of companies overseas have expanded. “The vital point here is that U.S.-listed companies are benefiting from many of the same global growth trends as their global peers, and yet their stocks remain unloved. The market has hardly been granting U.S. growth companies any premium for their growth,” according to the report. “All of this means that U.S. equities in general, and growth stocks in particular, are in a very advantageous position, and, we believe, poised for gains.”