Cathy Wood: The Fed is ‘probably overdoing’ its fight against inflation, warns of signs of deflation.

As tech stocks tumbled Tuesday following a better-than-expected inflation report, Kathy Wood of ARK Investment Management raised concerns that the Federal Reserve may be tightening monetary policy too much amid rising inflation.

“You’re probably overdoing it here,” said Wood, ARK’s founder, CEO and chief investment officer, in the company’s monthly market announcement Tuesday afternoon. “They’re going to let something crack first,” including jobs, she said, adding that while the Fed is tightening, inflation is about to settle below its 2% target.

Wood said that ARK thinks jobs are “already falling apart,” especially among small businesses, and reiterated that the U.S. is already in recession. “We’re seeing a lot of inflation in the pipeline,” she said, with commodity prices such as oil, timber and copper falling along with the Baltic freight index.

U.S. stocks fell on Tuesday, as investors worried the Fed would need to keep up its pace of aggressive monetary tightening to combat stubbornly high inflation. Many investors fear the central bank could trigger a recession if it raises interest rates too quickly in an effort to control rising inflation.

The Dow Jones Industrial Average DJIA;
Down 1,276 points, or 3.9%, on Tuesday, the S&P 500 SPX;
The tech-heavy Nasdaq Composite COMP, which sank 4.3%;
It is down 5.2%. All three major stock indexes experienced their biggest percentage declines since June 11, 2020, following their four-day winning streak, according to Dow Jones Market Data.

Stocks fell after the U.S. Bureau of Labor Statistics reported Tuesday morning. The reading on inflation, including core data that strips out food and energy prices, was stronger than expected.

All 11 S&P 500 sectors finished sharply lower on Tuesday, with communications services, information technology and consumer discretionary seeing the biggest losses, with declines of more than 5%. Wood Flag ARK Innovation ETF ARKK,
The shares fell 6.8%, according to FactSet data.

ReadCathy Wood’s ARK Innovation ETF, tech stocks fall after August inflation reading

“Innovation stocks took a big hit” last year when inflation and inflation began to rise, although the broader U.S. stock market was broadly higher in 2021 before buying this year, Wood said.

According to FactSet data, shares of ARK Innovation ETF They are up about 55 percent in 2022 through Tuesday, after falling 24 percent through Tuesday. The S&P 500, by contrast, rose nearly 27 percent last year and is down 17.5 percent so far this year.

Wood said later this month she expects the Fed to raise its benchmark rate again by three-quarters of a percentage point. But she also looked further ahead, predicting that the central bank would eventually relent from its aggressive stance in response to “some of the deflation we’re seeing now.”

As the Fed begins to change its “narrative,” she said, hard-hit creative stocks as a category could then see “excessive returns.”

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