Buying Peloton and similar growth stocks is 'absolute nonsense,' says strategist

Published Thu, Dec 22 20227:39 PM EST

High-growth tech stocks are unlikely to rebound after a "pivot" on interest rates from the Federal Reserve, according to one market strategist. Peter Toogood, chief investment officer at investment platform Embark Group, said a change in interest rate strategy by the U.S. central bank will indicate the economy had taken a turn for the worse, which will send "profitless growth stocks" crashing even further. The Fed raised interest its benchmark interest rate to a targeted range between 4.25% and 4.5% in December and indicated it would continue to raise rates to bring rampant inflation under control. This high-interest-rate environment has devalued equities and sent many tech stocks, including the Nasdaq Composite , firmly into a bear market this year. Toogood believes that as rates remain high and growth slides (the Fed expects GDP to grow by just 0.5% next year), investors will begin demanding greater returns from equities. Profitable companies will come out on top, he said, while companies generating losses will get punished by investors. In such an environment, Toogood said stocks such as Peloton were an "absolute nonsense" trade for investors and pointed to its more-than-70% decline this year to date. "Buying Peloton — what? What nonsense. Profitless growth has gone — yey, let's be happy. And the FAANGs have halved," he said. The exercise equipment maker's dismal performance is not unique. The ARK Innovation ETF , which currently holds shares in about 30 mostly profitless companies chasing "disruptive innovation," is down by more than 65% this year. The fund, run by Cathie Wood, doubled in value from its pre-pandemic levels last year but has now given up all of those gains. Wood has attracted criticism from a range of value investors for the fund's lackluster performance, including Toogood. The ARK Next Generation Internet ETF , another fund also run by Cathie Wood, previously held Peloton shares. Dan Loeb, a long-time value investor, slammed Wood for disparaging investors who look at "archaic measures" such as cash flow. While Clifford Asness, the founder of hedge fund AQR Capital, said Wood was "so wrong" because she was "forecasting a bazillion percent GDP growth and forecasted returns of a bazillion were a hint." For her part, Wood recently told investors in her weekly newsletter that the fund was "not wavering" from its long-term belief of investing in disruptive companies after it added shares of Tesla and Coinbase — both companies have more than halved in value this year. She expects the electric vehicle company to hit $1,500 by 2027. Shares were trading around $137 Thursday. "People say impossible, but that's what happened to Tesla from our early days," Wood said CNBC's Dominic Chu during CNBC Pro Talks . "If we're right, that will represent more than half of the traditional benchmarks and the global public equity markets and so what that tells us is a lot of the benchmarks are going to be in harm's way."