Cathie Wood says the US is in a recession and her growth fund has bottomed out
- The economy is in a recession and the labor market is expected to slow, Cathie Wood of Ark Invest told CNBC.
- Wood said the Fed was focused on lagging indicators such as the CPI and jobs data, which is why his view differs from that of Fed Chairman Jerome Powell.
- Wood said his flagship growth fund is likely to post strong performance after bottoming well ahead of the broader market.
Ark Invest’s Cathie Wood is certain the U.S. economy has already entered a recession, according to an interview with CNBC on Friday.
“What we’re seeing in these results is that we’re in a recession… We think it’s an inventory-driven recession, and I think that’s coming through loud and clear. We’re seeing advertisers drastically reduce,” Wood said.
Recent earnings results from Snap and Meta Platforms revealed that advertisers have indeed been slowing spending on these platforms in recent months, while Walmart and Target have warned that excess inventory will weigh on earnings this year.
Wood’s view of the current state of the US economy differs from that of Fed Chairman Jerome Powell, who said last month he saw no signs that the economy had entered a recession. . But Powell and the Fed are primarily focused on lagging indicators, Wood said, like the job market and inflationary readings like the CPI.
This means the Fed is unlikely to recognize that the economy is in a recession until it has already happened.
Instead, Wood focuses on leading economic indicators to support his view that the economy is about to weaken further and inflationary pressures about to end.
“If you look at initial UI claims, they’re up 50% from the minimum, so I think we’re going to see a significant disappointment in the jobs numbers,” Wood said. Additionally, gold prices peaked in 2020, which is an important indicator of inflation, and copper prices have fallen significantly, which is a closely watched indicator of economic activity.
“All of these signals indicate that inflation is going to come down, it’s going to go down significantly. And we’re probably going to see some deflation,” Wood said.
And that environment could set Ark Invest’s flagship fund for a decent rally going forward, according to Wood, who said his fund had bottomed out.
“Generally, growth stocks will outperform as we head into the end of a bear market and the end of a recession because they are the new leadership,” Wood said. “It looks like we bottomed out on an intraday basis based on our flagship strategy on May 12.”
The bottom of Ark’s flagship fund came about a month before the Nasdaq 100 and S&P 500 hit their lows so far this year.
“It’s an early signal that we could turn the corner here,” Wood said. This would be good news for Ark Invest investors, given that their flagship fund is down around 70% from its February 2021 peak.
But Wood may not be out of the woods yet, as some of his top holdings like Roku, Teladoc and Coinbase saw steep declines last week on earnings and an SEC investigation.