Key points:
- ARK Innovation ETF (ARKK) stock is down 62.2% this year. What’s next?
- ARKK shares are trading at a long-term support zone and are attractive.
- Cathie Wood continues to warn the Fed about possible deflation.
The ARK Innovation ETF (NYSEARCA: ARKK) stock price has fallen 62.2% since the year started and is currently trading near a long-term support zone that has been in place since May this year. Each time the ARKK price has hit this level, it has bounced off. Could the same happen this time around?
Let’s dive into the matter and see if we can find a way forward. Yesterday, Cathie Wood, the legendary investor behind ARK ETFs, wrote an open letter to the US Federal Reserve highlighting the massive risk of a deflationary bust posed by its aggressive rate hikes.
Also read: What Are The Best Performing EFTs In 2022?
Wood pointed out the recent peak in commodity prices that have since started falling, referred to as upstream products and markets, with a similar effect being felt downstream. In addition, inventory levels at leading retailers such as Walmart and Target surged higher by 25.5% and 36.1%, respectively, indicating that they might have overstocked.
The same situation is playing out across other retailers, such as Nike, whose inventories surged 44.2% despite a minimal 3.6% increase in sales. Wood also pointed out that used-car prices had fallen 13.5% year-to-date after rallying to a peak of 54.2% in April 2021.
However, the question remains, will the Fed listen to the many voices of reason that are warning of either a recession, deflation or stagflation in the United States? The short answer is we do not know for sure since the Fed has been adamant about its rate hikes to fight inflation.
If the Fed acts now and stops its rate hiking cycle, the markets might overreact, which could force prices to rise again, eroding the gains made by the Fed in the last few months. Whenever the markets expected a smaller rate hike from the Fed, they rallied higher, which explains the Fed’s resistance to slowing down its rate hikes.
Therefore, firms like ARK Invest that hold huge stakes in tech and growth companies will continue suffering amid the high-interest rate environment. Cathie has used the opportunity presented by the crash in more growth stocks to buy more shares in tech companies.
ARK Invest will benefit immensely if the Fed changes its hawkish monetary policy stance to bearish, making its shares quite attractive at current prices.
ARK Innovation ETF stock price.
The ARK Innovation Stock price has fallen 62.19% this year and is trading at a crucial long-term support zone.