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Ark Invest’s Cathie Wood: The U.S. economy has entered a recession

Yahoo Finance's Alexandra Semenova discusses ARK Invest founder Cathie Wood's view of the U.S. economy and indications there is a slowdown.

Video Transcript


AKIKO FUJITA: Well, as the markets try to price in jobs and economic data alongside a better-than-expected but still mixed earnings quarter, notorious market bull Cathie Wood is out with a very bearish take, saying a recession may already be here. Let's bring in Alexander Semenova on the Cathie beat today.

ALEXANDRA SEMENOVA: Well, guys, as we know, two consecutive quarters of declines in real GDP are the unofficial definition of a recession, but this is apparently the official marker for Ark Invest's Cathie Wood. The Ark founder and CEO said Monday in an interview with Bloomberg that the US economy has already entered a recession and that we'll be coming out of it next year. She pointed to two consecutive quarters of negative GDP and three months of declines in leading indicators to suggest we're already in an official economic downturn.

This is, of course, different from expectations on Wall Street and the majority of economists who believe we may enter a recession in 2023, pushing those expectations after the blowout July jobs report on Friday showed payroll-- showed a payroll gain of more than half a million last month would downplay the excitement over this report and said that investors should instead focus on the more moderate rise of 179,000 jobs in household employment.

She also pointed to a rise in weekly jobless claims and company layoff announcements. And while the yield curve inversion has some economists predicting we'll enter a recession next year, Wood also said that she believes this is yet another testament that the economy is already in one. Ark Invest also expects the Federal Reserve will, quote, "usher in rate cuts next year." Ark Invest family of actively managed ETFs have been hit particularly hard by this year's sell-off in tech stocks, which many have tied to rising interest rates. The flagship ARK Innovation has rebounded about 17% this past month but remains down nearly 50% year-to-date. Guys.

BRIAN CHEUNG: So on the tech side of things, we have noticed some movement in some big names, Nvidia seeing a fall and apparently Cathie trying to take advantage of that by taking a stake.

ALEXANDRA SEMENOVA: Yeah, well, even a recession isn't stopping Cathie Wood from staying the course on her investment strategy. Buying the dip yesterday on Nvidia, Wood bought more than $60 million worth of the chip company across three of her funds Monday when the stock fell 6% following a revenue warning. The move is consistent with Ark strategy to double down on existing holdings, particularly during periods of decline. We have seen her do this recently with Shopify, Roku, and Zoom, so we'll see how that turns out for her.

BRIAN CHEUNG: All right. Let's see. Yahoo Finance's Alexandra Semenova, thanks so much. Well, on the point of what Ark has done so far this year, I think it's important just to kind of zoom out here and just take a look at what's been happening with overall ARK Innovation fund's fall, right. I mean, when you consider that this is an ETF that's down, what, 50% year-to-date, I mean, it's-- recession or not--

AKIKO FUJITA: More than 60% from its 52-week high.


AKIKO FUJITA: Right. I mean, that's worth pointing that out. I think you're right, Brian. I mean, we were just talking about this in the break. These are conviction plays, and Cathie Wood has made it always very clear that this is not about just sort of the short term. She sees the 10 year, 20-year plan. But I mean, you have to wonder-- I was just looking at her holdings right now. I mean, they haven't shifted that much even in this environment. I guess that's what they call conviction place.

BRIAN CHEUNG: Yeah, and I think that this frames a lot of what Alex was just talking about in terms of how she's viewing the economy in a recession, even though the debate is still out there about whether or not we are in one given the jobs report that we saw last week showing a strong labor market. But when your kind of indicator and your lens of the world is from the innovation side of things, right, even outside of the companies that are in the ARK Innovation ETF, tech, broadly, has had a very rough 2022. And the rebound so far, in the last six to eight weeks, hasn't necessarily gotten better because we're still seeing announcements of companies laying off employees and getting smaller, right?

AKIKO FUJITA: And also-- also, when you think about tech broadly, the ones that have been hit hardest are the ones that are not profitable. And these are the companies that are in growth mode, that are investing in this innovation that Cathie Wood's talked about, that is not an environment where-- we're not in an environment right now investors saying, yeah, put more money behind it. I mean, how much have we heard from so many of these tech companies who say profitability is now the focus?

It's not about growth anymore. And yet her funds are really focused on those growth at all costs pouring into innovation. I mean, if you believe in the tech, the underlying tech, sure, you could make the argument even with the declines, that doesn't change your outlook because of the way the company is run.

BRIAN CHEUNG: And another important thing to bring up here is we were just showing the MAX chart of the ARK Innovation ETF. I mean, it's a remarkable thing to look at because if you were to compare this against the S&P 500, a very different story. But look at this-- a massive pop, essentially, between 2020 and then now. And the trend line is almost still the same if you draw it from the beginning of, let's say, 2016.

But Akiko, what's the running theme for this period from 20-- I believe it was 2014 that the ARK Innovation fund was started, zero interest rate policy, right. They haven't really gone through a cycle like this before. And I think you're starting to see what the wear and tear does on tech and high-growth stocks in an environment like we're seeing right now.