Cathie Wood Sees 'Demand Destruction in oil, Good News for Tesla, EVs

Cathie Wood's Ark Innovation ETF has tumbled 63% so far this year, and is down 78% from its February 2021 zenith.

Celebrity money manager Cathie Wood reiterated two of her most important views Dec. 13 – that we’re already in a recession and that we’re suffering from deflation.

In a webinar, the Ark Investment Management CEO said it’s a done deal that the Federal Reserve will raise interest rates by 50 basis points Dec. 14, matching experts’ consensus. The Fed has become the be-all and end-all for this stock market, she said.

Wood said the money supply is falling at an alarming rate. Renowned Wharton emeritus finance professor Jeremy Siegel told her he is fearful that Fed tightening will “tip us into a serious recession,” she said. She added, “I believe we have been in a recession all year.”

The drop in commodity prices during recent months also represents a recessionary sign, Wood said, pointing out that oil has slid about 40% since March.

“That tells us there is real demand destruction,” Wood said. “You can call that recession.” Global oil demand may have peaked in 2019, she said. The consumer shift to electric vehicles from gasoline-powered vehicles will intensify, Wood said.

Electric vehicle maker Tesla represents the second biggest holding in Wood’s flagship Ark Innovation ETF  (ARKK) - Get Free Report.

Wood Sees More Recessionary Signs

Other signs of recession are excess inventories at retailers and the inverted yield curve, Wood said. An inverted yield curve occurs when short-term Treasury yields are higher than long-term yields.

As for inventories, “we’re seeing discounts during the holiday season because of weak demand,” Wood said.

Meanwhile, “the Fed is fixated on wages,” she said. “Wage growth is nowhere near inflationary and is already slowing down.” Average hourly earnings increased 5.1% in the 12 months through November. Housing prices and rent also are falling, Wood pointed out.

Inflation may be headed below the Fed’s 2% target, Wood said. Consumer price inflation totaled 7.1% in the 12 months through November, the lowest rate since December 2021.

As for Ark, “we’re capitalizing on the explosive opportunities” created by declines in the stocks Wood likes, she said. That’s young technology stocks.

Ark's Underwhelming Investment Performance

Wood’s investment performance has been lousy this year. Ark Innovation ETF has dropped 63% so far in 2022, and is down 78% from its February 2021 peak. Wood has defended herself by noting that she has a five-year investment horizon.

But the five-year annualized return of Ark Innovation totaled only 0.31% through Dec. 12, a far cry from 10.35% for the S&P 500.

The fund’s performance also doesn’t come close to Wood’s goal for annualized returns of 15% over five-year periods.

But the $7.1 billion fund’s subpar returns haven’t pushed investors away. Ark Innovation has registered a net inflow of $1.45 billion from investors year to date, according to ETF research firm VettaFi.

You might wonder why so many investors have stuck with Wood, despite her mediocre returns. The fact that she had one spectacular year certainly helps. Ark Innovation ETF skyrocketed 153% in 2020.

Also, Wood has become something of a rock star in the investment world, appearing frequently in the media. She is clearly intelligent and articulate, explaining financial concepts in ways that novice investors can understand.