Alger
October 05, 2022
Alger is widely recognized as a pioneer of growth-style investing.

Cash Drain

The U.S. money supply grew by an unprecedented $6 trillion since the pandemic. U.S. policy is reigning in that growth to help curb inflation, but what happens if the money supply declines for the first time in more than 80 years?

 

  • The money supply charted above consists of currency in circulation as well as money in checking, savings, and money markets for consumer and business accounts. Its growth rate is decelerating due to the Fed’s reduction of its balance sheet and interest rate hikes, as well as moderating government expenditures.
  • Given that economic growth equals the money supply multiplied by the frequency one dollar is spent to buy goods and services per unit of time, a deceleration in money growth should lead to weaker economic growth. In our view, money supply appears likely to contract in early 2023, which would be the first time since 1938. While slower money growth may bring down inflation, its probable side effect may also slow the economy.
  • Slower economic growth does not impact all stocks equally. Companies with less debt and higher margins should do better, as should those whose fundamentals are driven more by market share gains than economic growth. 
Alger On the Money
Inspired by Change, Driven by Growth.
Alg
er is a signator
y to the PRI and carbon neutr
al.
Sources: Actual data is based on the year-over-year change in money supply, calculated by U.S. Federal Reserve. Last actual data point is
June 2022. Forecasted data is based on Piper Sandler regression data from the M2 money supply.
Money Supply Growth
-5%
0%
5%
10%
15%
20%
25%
30%
2023E
2021
2019
2017
2015
2013
2011
2009
2007
2005
2003
Actual
Forecasted
YoY Growth
The money supply charted above consists of currency in circulation as well as money in checking,
savings, and money markets for consumer and business accounts. Its growth rate is decelerating
due to the Fed’s reduction of its balance sheet and interest rate hikes, as well as moderating
government expenditures.
Given that economic growth equals the money supply multiplied by the frequency one dollar is spent
to buy goods and services per unit of time, a deceleration in money growth should lead to weaker
economic growth. In our view, money supply appears likely to contract in early 2023, which would be
the first time since 1938.
While slower money growth may bring down inflation, its probable side
effect may also slow the economy.
Slower economic growth does not impact all stocks equally. Companies with less debt and higher
margins should do better, as should those whose fundamentals are driven more by market share
gains than economic growth.
Cash Drain
The U.S. money supply grew by an unprecedented $6 trillion since the pandemic. U.S. policy is
reigning in that growth to help curb inflation, but what happens if the money supply declines for the
first time in more than 80 years?
Fred Alger Management, LLC
100 Pearl Street, New York, NY 10004 /
www.alger.com
800.305.8547
(Retail)
/ 800.223.3810
(Institutional)
AOM298
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of October 2022. These views are subject to change at any time and may
not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security
or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
Ris
k Disclosures:
Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their
prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global
events such as environmental or natural disasters, war, terrorism, pandemics, outbreaks of infectious diseases and similar public health threats, recessions, or other
events could have a significant impact on investments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in
which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.
Important I
nformation f
or
US Investors:
This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund
and ETF shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.
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nformation f
or
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nformation f
or
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in Israel:
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