Cathie Wood says economic indicators 'will start screaming' at the Fed as it hikes rates

Published Tue, May 10 20223:55 PM EDTUpdated Tue, May 10 20226:42 PM EDT

Ark Invest's Cathie Wood said Tuesday the U.S. economy will start deteriorating as the Federal Reserve's aggressive tightening goes on, adding that a global recession is likely. "I think the Fed is misgauging here what's going on here. This is becoming highly restrictive," Wood said in an investor webcast on Tuesday. "We are beginning to see bankruptcies. We are seeing credit default swaps. These are insurance policies against bankruptcies." The Fed last week raised its benchmark interest rate by half a percentage point , the most aggressive step yet in its fight against a 40-year high in inflation. Chairman Jerome Powell indicated that another two, similar-sized moves are coming in June and July, while ruling out a rate hike of 75 basis points. "All of these indicators are a warning to the Fed. I think the indicators will start screaming at the Fed. They are shouting right now. They will start screaming as time goes on and they stick to their current plan," Wood said. The innovation-focused investor said the disappointing first-quarter GDP print should be taken more seriously. GDP unexpectedly declined at a 1.4% pace in the first quarter, below analyst expectations of a 1% gain. Wood warned that a global economic downturn could be on the horizon as central banks rush to tighten policies. She said recent economic readings from China and Europe looked worrisome. "We could be in a global recession," she said. "Others are really picking up on some of the dire metrics coming out of China and Europe. The sentiment indicator out of Europe, especially Germany, has been quite concerning." Wood's disruptive technology darlings have been among the biggest losers this year in the face of rising rates. Teladoc Health and Zoom have dropped more than 50% each in 2022, while Roku has slid more than 60% this year. Her flagship active fund Ark Innovation ETF (ARKK) is down 56% year to date, falling nearly 70% from its record high. The S & P 500 has fallen more than 15% in 2022 and it briefly tumbled below 4,000 to the lowest level in a year during the recent sell-off. The tech-heavy Nasdaq Composite has been hit even harder, down 24% year to date and off 27% from its record high, reached last November.

Cathie Wood, founder and CEO of ARK Investment Management LLC, speaks during the Skybridge Capital SALT New York 2021 conference in New York, September 13, 2021.

Brendan McDermid | Reuters

Ark Invest's Cathie Wood said Tuesday the U.S. economy will start deteriorating as the Federal Reserve's aggressive tightening goes on, adding that a global recession is likely.