By Christine Idzelis
As other investors worry the U.S. could face a recession next year, ARK Investment Management founder Cathie Wood thinks one already has hit — and it could be over next year.
While many economists and strategists have been “resisting the notion that we are in a recession,” and anticipate that the U.S. may enter one next year, “we actually think we’ll be coming out of it in 2023,” said Wood, ARK’s chief executive officer and chief investment officer, during the firm’s monthly webcast Tuesday.
“We think we’re in a pretty significant inventory recession, but we don’t think it will be anything like the systemic recession and financial crisis” in 2008 – 2009, she said. It’ll be more of a “garden variety.”
From the mid-1940s to 2007, the average U.S. recession lasted 10 months, according to a 2008 study by the Federal Reserve Bank of San Francisco, with the shortest in that stretch lasting only six months.
Wood said that innovation is “recession resistant,” pointing to the recent shift back towards growth stocks as a sign of this trend, as their growth rates are “superior” to the rest of the market, “which tends to be more influenced by the cycle.”
Growth stocks trounced value equities last month, with the Russell 1000 Growth /zigman2/quotes/210598136/delayed RLG -0.76% Index surging 11.9% while the Russell 1000 Value Index /zigman2/quotes/210598148/delayed RLV -1.18% gained 6.5%, according to FactSet data.
Wood’s flagship fund, the ARK Innovation ETF /zigman2/quotes/204808965/composite ARKK +0.32% surged 13.2% in July, but it has suffered deep losses so far in 2022. The fund fell more than 5% Tuesday, bringing its plunge this year to around 49%, according to FactSet data.
Major U.S. stock benchmarks are also down for the year. The technology-laden Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.68% has dropped around 20% this year through Tuesday, while the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.02% has tumbled 13.5% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.15% is down almost 10%.
Investors are looking ahead to the next inflation reading, with the highly anticipated July data from the consumer-price index due out Wednesday morning.
Investors will be looking closely at the data to help them assess the potential path of rate hikes by the Federal Reserve, as the central bank seeks to tame soaring inflation through tighter monetary policy.
While the CPI data for July could “be flat, or slightly up or slightly down,” Wood is expecting inflation to ease in the coming months. She said that gold /zigman2/quotes/210034565/delayed GC00 +0.0058% has been an “excellent” leading indicator of inflation in her career, with many people “surprised to learn” that the price of the yellow metal peaked in August 2020.
Wood also pointed to the decline in copper /zigman2/quotes/210054311/delayed HG00 -1.80% and energy costs, including the recent drop in oil prices /zigman2/quotes/211629951/delayed CL.1 +1.37% . And she suggested that “blown out” inventories at companies should lead to lower prices in the next few months as businesses try to “get rid of it.”
The Adobe digital price index, which is focused on e-commerce, recently fell — another sign of “the inventory overhang out there that companies are trying to cure right now,” according to Wood.
In her view, innovation, particularly if it’s “technologically-enabled” is deflationary. “But it’s good deflation,” she said.
U.S. stocks ended lower Tuesday, with the Dow down 0.2%, the S&P 500 falling 0.4% and the Nasdaq dropping 1.2%, according to FactSet data.