Cathie Wood of Ark: stocks could rise further if rates stay low
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- Deflationary forces will help keep rates low, which supports stocks, according to Wood.
- She expects most of the appreciation in equity markets to “come back to innovation” in technology.
- In the meantime, she sees a standoff between value and growth stocks that will resolve later this year or early next year.
Cathie Wood, CEO and Chief Investment Officer of Ark Investment Management, says the stock market can continue to gain if long-term interest rates stay below 2% to 3%.
“Too many people fear inflation, which is a multiple killer. We’re not, ”Wood said in the company’s monthly Market Update webinar.
Wood believes disruptive technologies will continue to be a deflationary factor in the market, which, together with cyclical deflation due to falling commodity prices for wood and copper, bodes well for stocks, in particularly disruptive technological stocks in which Ark invests.
According to Wood, stocks are not in a bubble and have appreciated in a V-shaped rally as the pandemic has slowed, but the bond market is, with unusually low yields. She said she was surprised at the drop in bond yields.
Part of the drop in yields can be explained by technical factors, including the fact that banks had to surrender treasury bills after the Federal Reserve decided not to extend an exemption that allowed them to exclude treasury bills. Treasury bills and deposits with the Fed from their calculation of a key known measure of bank capital. than the additional leverage ratio.
Falling commodity prices, an employment report showing declining household employment and workweek length, and lower consumption of durable goods are also contributing to lower yields. Wood expects overspending on services, like overspending on goods earlier this year, to lead to “large surpluses” and also contribute to future deflation.