Ark's Cathie Wood: Inflation Isn't the Biggest Market Threat

Despite the beating that Cathie Wood’s flagship fund of technology stocks has taken this month, the Ark Investment Management CEO and chief investment officer remains confident about the sector and worries more about deflation than inflation, she said Tuesday.

On Tuesday, shares of her firm’s flagship exchange-traded fund, the ARK Innovation ETF (ARKK), closed at $160.12, up 2% on the day but down sharply from its high in February of nearly $160. Assets dropped under $20 billion to their lowest level since January, Bloomberg reported. Tesla, the fund’s biggest holding, was among the stocks that were underperforming.

Ark’s “long-term performance is going to be determined importantly by what we do in down markets,” Wood said Tuesday during the company’s monthly update webinar. The company’s strategy has been successful “since we started the firm and, in my career, I have followed the same strategy,” she noted.

Pointing specifically to Tesla, she said the “slowdown” in sales of Tesla vehicles in China is “being offset by a ramp in the exports to Europe.”

Although “China wants to support its local players,” it also wants to “move upscale in terms of the goods that it exports,” she said, calling Tesla a great example of that, noting shipments of their vehicles from China to Europe are significantly picking up.

There are, meanwhile, “pretty phenomenal” opportunities in the market in general, she said before making several predictions.

Inflation vs. Deflation Predictions

Wood predicted that inflation as measured by the Consumer Price Index would “move into the 3% to 4% range” on a year-over-year basis over the next few months, while Producer Price Index (PPI) inflation would “move into the 6% to 8%” range or maybe a little higher.

Since the COVID-19 pandemic started, “prices have collapsed” on oil and we also face “supply chain problems” behind a “massive increase in demand” for goods, she said. However, she predicted that would only be a temporary problem.

Wood experienced the “last big wave” of inflation in the late 1970s and early 1980s, when it went “well into the double digits,” she noted. “So I know inflation. I’ve seen inflation and I do not believe the inflation genie is out of the bottle” now, she said.

There are understandably concerns about inflation because monetary and fiscal policies in the U.S. and much of the rest of the world “seem unhinged,” she said. After all, “there is a natural fear about how we’re going to pay for the massive stimulus that has been in place pretty much since the great financial crisis” of 2008 and 2009.

Yet “inflation has not been a problem” since that time, she pointed out.

On the other hand, if the value of the U.S. dollar were to “break down, then we’ll have to revisit our thoughts on inflation,” she conceded.

Meanwhile, “the odds of deflation have actually gone up,” she said. But it’s “innovation-based deflation,” which is “very good deflation” that is tied to strong unit growth, she noted.