Cathie Wood, founder and CEO of ARK Invest, is known for her large and often risk-bet on “disruptive» technology companies. From You’re here has Zoom, she’s taken risks at some of the most dynamic, growth-focused companies on the planet and scored several major wins along the way. In recent years, however, many of his favorite picks have been vulnerable to rising interest rates as the Federal Reserve has worked to keep inflation in check. Simply put, rising borrowing costs have crippled many of the unprofitable tech stocks Wood relies on. But the good news is that the suffering may be coming to an end, she says, both for her fund and for the economy.
Not long ago, Wall Street’s greatest fear was “sticky” inflation. The idea was that the rise in consumer prices could stagnate around 4 to 5% due to tightening labor marketwell-anchored inflation expectationsor even demographic dataforcing Federal Reserve officials to maintain interest rates »higher and longer» in order to achieve their inflation rate objective of 2%.
But Wood never believed the stubborn inflation argument. She has repeatedly said that technological innovation will lead to an era of rising productivity and price drop while criticize Fed officials for needlessly crippling the economy (and clipping the wings of its fund) with rate hikes. This is why after the last cooler than expected inflation report shocked Wall Street this week, sending stocks higher overvoltageWood said she wasn’t surprised at all and that consumers should expect deflation from here on out.
“The biggest risk here is deflation, not inflation. And we’re seeing more and more signs of that,” Wood told the Wall Street Journal on a Tuesday interview. “I actually think investors are worried about the wrong things.”
Wood points to falling prices for airline tickets, cars and commodities as evidence that inflation is turning into deflation across the economy. In his opinion, the Dow Jones Commodities Indexa broad measure of commodity futures prices, is down more than 7% over the past 12 months and 21% since its peak in March 2022. And the Consumer Price Index (CPI) of Tuesday report showed that despite the United Auto Workers strike, new and used car prices fell in October, while airline ticket prices fell 13.2% year-over-year .
In a separate interview with Bloomberg This week, Wood argued that deflation is now appearing in the economy because the Fed has gone too far with its more than 20-month interest rate hike campaign intended to tame inflation.
“I think the Fed overdid it. I think we’re going to see a lot more deflation in the future,” she said. “I wouldn’t be surprised to see the CPI go negative at some point next year.”
Calls for deflation are increasing
Although Wood is known for making bold statements and predictions, including claiming that Tesla’s stock overvoltage to $2,000 per share by 2027 and Bitcoin will reach $1.5 million just three years later, she is not the only one to predict deflation.
Walmart CEO Doug McMillon said about the retail giant’s third quarter call for results On Thursday, prices of dry food products and consumables could “start to fall in the coming weeks and months”, leading to a broader deflationary trend in the economy.
“In the United States, we could go through a period of deflation in the coming months,” he told analysts, adding that he was “happy” about it.
Home Depot’s management team sang a similar tune in the third quarter call for results Tuesday also. “I think the most important observation we have made is that the worst of the inflationary environment is behind us,” said Chief Financial Officer Richard McPhail, adding that “retail prices are stabilizing in the market.”
A deflationary savior for a leaky ARK?
ARK Invest’s Wood said this week she was pleased with the recent deflationary trend, which should benefit her portfolio of technology and other growth-oriented stocks.
After an incredible run of success during the first year of the pandemic, Wood’s flagship fund, the ARK Innovation ETF, fell 70% from its January 2021 peak. he Fed’s interest, soaring borrowing costs and the rise of alternative investment options for individuals in Treasuries and bonds have hit ARK Invest’s growth-oriented holdings hard.
Wood has often criticized the central bank in recent years for ARK Invest’s underperformance, arguing that officials made a “serious mistake” with the pace and magnitude of their rate hikes, creating a “earthquake» for the economy – and the strategy of his company.
But the veteran Wall Street investor said this week that ARK Invest is now “in a very good position” to benefit from the changing tides of the economy. “Technology is deflationary. And so they know how to operate in a deflationary world,” she told the Wall Street Journal “disruptive” technological holdings of its funds.