Renowned investor Cathie Wood, founder, and CEO of ARK Invest, has raised concerns about the risk of deflation following the Federal Reserve’s swift and aggressive rate hikes. Wood, known for her bold bets on disruptive technology companies, believes that the focus on inflation is misplaced, asserting that deflation is the real threat to the economy.
Wood has consistently challenged the idea of “sticky” inflation, arguing that technological innovation will lead to increased productivity and lower prices. The recent cooler-than-expected inflation report, which surprised Wall Street and led to a surge in stocks, aligns with Wood’s expectations.
In an interview with the Wall Street Journal, Wood expressed her belief that deflation, not inflation, poses a more significant risk. She pointed to declining airfare, car, and commodity prices as indications of a shift from inflation to deflation across various sectors. The Dow Jones Commodity Index, a measure of commodity futures prices, has fallen over 7% in the last 12 months, supporting Wood’s deflationary outlook.
Wood attributed the emergence of deflation to the Federal Reserve’s prolonged interest rate hiking campaign, which she believes has been excessive. In a Bloomberg interview, she stated, “I think the Fed’s overdone it. I think we’re going to see a lot more deflation going forward,” and she wouldn’t be surprised to see the Consumer Price Index (CPI) turn negative next year.
Interestingly, Wood’s perspective on deflation finds support from other industry leaders. Walmart CEO Doug McMillon anticipates deflation in grocery and consumable prices, while Home Depot’s management suggests that the worst of the inflationary environment may be behind us.
For Wood, the recent trend towards deflation is welcomed news, especially given the challenges her flagship fund, the ARK Innovation ETF, has faced amid rising interest rates. The fund has experienced a significant drop from its peak in January 2021. Wood sees technology as inherently deflationary, positioning ARK Invest to navigate and thrive in a deflationary economic environment.
