Investment guru Kathy Wood has raised concerns that the Federal Reserve may be tightening its monetary policy too much, given signs of deflation. This is at the same time as the sharp avalanche that was registered yesterday (Tuesday) in the technology stocks in particular and the US stock exchanges in general which led Wall Street to one of the worst days in recent years.
Wood, the founder and investment manager of Keren ARK , which focuses primarily on technology companies, though not exclusively, spoke on the fund’s monthly webcast. She repeated her view that the US economy is already in recession. She referred to commodities that fell sharply from the peak, including oil, wood and copper, and said that “we see a lot of deflation in the pipeline”. She referred to the Fed’s measures and said that until they moderate, inflation in the past will fall well below the 2% target. “They’re probably overdoing it,” she said. She further added “they will let something crack first” and expanded that in ARK’s opinion the employment rate “is already cracking under the surface”, especially among small businesses.
The disappointing inflation data published yesterday in the US led to especially sharp declines on Wall Street, where one of the worst evenings in the last two years was recorded. 494 of the shares of the S&P 500 index fell, causing it to record the worst day since June 2020, and in the Nasdaq 100 index, all shares finished in the red . In the entire Nasdaq, only 517 stocks (16%) registered gains, compared to about 2,700 stocks that lost height. US stocks lost a huge market value of 1.6 trillion dollars yesterday, when the five largest companies in the S&P 500 index – Apple, Microsoft, Amazon, Alphabet and Tesla – deleted 477 billion dollars from the aggregate value.
Wood said that when inflation and interest rates began to rise last year, “innovation stocks were hit hard,” even as the overall stock market continued to climb. The fund’s ETFs plunged about 55% this year, after falling 24% last year. For comparison, the S&P 500 index jumped in 2021 by about 27% and lost only about 17% this year.
Wood predicts that the Fed will continue its aggressive line and raise interest rates later this month by another 0.75%. In the longer term, she estimates that the central bank of the United States will moderate in response to “the deflation we are already seeing”.