By Alessandro Albano and Francesco Casarella
Investing.com - It's a sincere Cathie Wood talking to us at Lisbon Web Summit 2022. "We are watching the Fed's moves closely, but the reversal and underperformance of Innovation stocks, i.e., those covered by ARK (NYSE:ARKK), did not start with the war in Ukraine but as early as February 2021."
"You have not seen such a sustained bear market," the investor and founder of the famous ARK Innovation ETF, which during the pandemic two-year period was one of the absolute winners on Wall Street, only to take a big hit that came from inflation and Fed rate hikes and thus lose 70 percent over the past year, tells us in surprise.
The fund, however, still performs well when looking at the 5-year timeline, +11%, and the 10-year timeline, +94%. Among the stocks invested by Cathie Wood, are companies such as Tesla (NASDAQ:TSLA), Zoom (NASDAQ:ZM), and other major companies in the tech-innovation world that have greatly benefited from the Fed's cheap liquidity.
On InvestingPRO, you can find all the stocks covered by ARK and all the trends since the beginning of the listings.
Last but not least, through ARK Ventures, a thematic fund managed by Wood that deals vertically with public companies and private equity, the firm has decided to bet on Twitter (NYSE:TWTR), following Elon Musk's $44 billion takeover that promises to radically change the social media's financial structure.
"But here I ask a question," Cathie Wood asks, "innovation helps people in their everyday lives, so how do you bet against innovation?"
"Falling valuations is an explanation given by many," she replies, "and we know that equity valuations can contract even significantly. But our companies, because of their ability to innovate and innovate themselves, will continue to grow even in economic downturns, and that is what will allow them to revive."
We turn our focus now to the Federal Reserve, which at its last meeting decided to increase rates by 75 basis points for the fourth time, with Chairman Jerome Powell reversing what was written in the bank's statement and extinguishing hopes for a rate slowdown, or Fed pivot, at upcoming meetings.
"If the Fed signals an increase of less than 75 basis points, that is the first signal the market is desperately looking for," Wood points out, but after last night's increase, she tells us optimistically, "I don't think the bank will implement another similar one in the next few meetings."
Tech stocks have been the hardest hit, and in the event of an inflationary spike and Fed pivot, Wood further explains, "they will be the ones that will benefit the most."
Speaking of inflation, according to ARK's founder in terms of consumer prices, "from here on out we will begin to see what declines on a monthly basis, at least in the United States."
As for other markets, however, things may not be so clear. "There are several issues including a stronger dollar and recessionary winds. I think the biggest risk from here on out is going to be deflation, and especially bad deflation, which is where demand is destroyed."
"We will see a lot of price cuts in these winter months and that should put the Fed on high alert," Cathie Wood warns in conclusion.