Cathie Wood Ark Invest Founder & CEO
(Cathie Wood Ark Invest Founder, CEO & CIO)

U.S. is already in an economic downturn, Cathie Wood says

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Ark Invest’s founder, CEO and CIO Cathie Wood said on Tuesday (June 28) that the United States is already in a recession. “We think we are in a recession,” the innovation-focused 66 year-old investor told CNBC.

“We think a big problem out there is inventories… the increase of which I’ve never seen this large in my career. I’ve been around for 45 years.” She went on to note that the latest University of Michigan consumer sentiment report has shown that confidence in the highest income groups is lower than in the lowest income groups. “The latter group is tormented by food and energy prices,” she stressed.

Consumer sentiment fell 14.4% in June. All components of the index fell this month, with the steepest declines in the year-ahead outlook for the economy, down 24% from May, and consumers’ assessments of their personal financial situation, which worsened about 20%. The June consumer sentiment index reading was an all-time low for the survey, comparable to the trough reached during the 1980 recession.

Wood also admitted inflation has turned out to be hotter than she had expected due to supply chain disruptions and geopolitical risks. “We were wrong on one thing and that was inflation being as sustained as it has been,” Wood said. “Supply chain … Can’t believe it’s taking more than two years” to resolve the supply chain issues.
Annual inflation rate in the US unexpectedly accelerated to 8.6% in May, the highest since December of 1981 and compared to market forecasts of 8.3%.

Wood first declared the world’s largest economy had fallen into a recession last week. She took on to Twitter to warn that massive inventories (often viewed as a leading indicator for demand) have the potential to unwind and hurt growth for the rest of the year, as consumers are feeling the rapid price increases.

The money-manager has had a tough 2022 as her top holdings like Tesla, cryptocurrency exchange Coinbase and virtual healthcare firm Teladoc have been hit hard this year amid a broader market selloff. Her ARK Innovation fund, often known by its ticker as ARKK, is down a whopping 52% year to date, falling 66% from its 52-week high.

ARKK had returned an astonishing 157% during 2020, compared to just 18% for the S&P 500 as a whole.

“Truth will win out,” she said repeatedly on her firm’s webinar last month, addressing questions about a looming recession and investors shorting her fund.

ARKK has had more than $180 million in inflows in June, according to FactSet. Wood’s clients are mostly sticking with her and new money is coming in as investors seek diversification in a down market, CNBC reported.

Wood registered ARK Investment Management LLC as an investment adviser with the U.S. Securities and Exchange Commission in January 2014. She founded ARK to focus solely on disruptive innovation while adding new dimensions to research.  She believes that ARK can identify large-scale investment opportunities in the public markets resulting from technological innovations centered around DNA sequencing, robotics, artificial intelligence, energy storage, and blockchain technology.