Cathie Wood’s ARK Invest Fund Sees No Respite in Today’s US Inflation Report as the Utter Bloodbath In Profitless Tech Stocks Is Likely To Continue

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This is not investment advice. The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.

Cathie Wood’s ARK Invest fund is the poster child of post-pandemic mania around profitless tech stocks. However, with the Federal Reserve now actively draining excess liquidity from the financial system and hammering risk assets via a hawkish interest rate increase trajectory to tamp down the wealth effect pervading the American economy, thereby setting the stage for an eventual moderation in the ongoing inflationary impulse, the ARK Invest fund is naturally facing a devastating bloodbath.

ARKK ETF Price Chart

 

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To wit, the fund’s flagship ETF, the ARK Innovation ETF (ARKK), is down 57 percent so far in 2022 alone, on top of a 24 percent loss in 2021. Cumulatively, the fund is now down an eye-watering 81 percent since the end of 2020. Despite these chronic losses, the fund has attracted inflows of around $1.3 billion so far this year.

Source: https://cathiesark.com/ark-funds-combined/complete-holdings

The above snippet details some of the largest holdings of ARK Invest. Zoom (NASDAQ:ZM) is ARK’s second-largest holding and is down over 50 percent year to date. Moreover, Roku (NASDAQ:ROKU) is down over 64 percent in the same period. Our readers would remember the mania that ensued when Coinbase (NASDAQ:COIN) went public in a high-profile IPO. Well, that stock is now down over 70 percent in 2022. In fact, in its latest earnings, Coinbase revealed that it lost 2.2 million users in Q1 2022, hardly a surprise given the ongoing bloodbath in the crypto sphere.

Interestingly, throughout the ongoing carnage, Cathie Wood has remained adamant that her investing style, which involves taking outsized positions in mostly pre-revenue companies with the aim of hitting a rare jackpot, will see the ARK Invest fund outperform on a 5-year time horizon.

Regardless of the eventual outcome, today’s US inflation reading was panned as a crucial inflection point for ARK Invest as well as the broader market amid expectations of a moderation in CPI.

The US Bureau of Labor Statistics has now reported an annualized CPI reading of 8.3 percent for the month of April versus a consensus estimate of 8.1 percent. Bear in mind that the annualized CPI reading of 8.5 percent for the month of March had constituted a 41-year high. Delving deeper, the core CPI increased at an annualized rate of 6.2 percent. This is less than the 6 percent reading expected by analysts.

No, Cathie Wood’s ARK Invest Fund Is Not Abandoning Tesla (TSLA), Despite Sensational Headlines in the Media

Today’s report has rubbished the hypothesis that the peak inflation in the US is now likely behind us, which was supposed to set the stage for a gradual emergence of a dovish tilt in the Fed’s monetary policy. Today's reading, in fact, constitutes a headwind for high-beta, growth-heavy tech stocks that constitute dominant holdings in the ARK Invest fund.

There are early signs that Cathie Wood might be rethinking her strategy of throwing everything, including the proverbial sink, at profitless tech stocks. For instance, ARK Invest just dumped $12.7 million worth of Tesla (NASDAQ:TSLA) shares for a stake in General Motors (NYSE:GM). We wait with bated breath to see if this constitutes an inflection point for Wood’s investing style.

Source: https://www.tradingview.com/chart/?symbol=INDEX%3AS5TH

On the macro front, there might be a glimmer of hope for ARK Invest. The S5TH chart above denotes the proportion of stocks in the S&P 500 index that are trading above their 200-day moving average. Currently, 71.04 percent of these stocks are trading below this crucial metric. Notice that the current reading is not very far from previous capitulation levels. Of course, a true market bottom will only materialize once we see signs of a sustained deceleration in the ongoing inflationary impulse.

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