Cathie Wood: The market is misjudging inflation trends; inflation data may be below market expectations

On January 18, ARK Invest founder Cathie Wood stated, “The experience of the past few years has shown us that the trend of declining inflation is very clear. However, official reports indicate that inflation has stalled. Many are wondering, with current market valuations near historical highs, if this is a prelude to a correction. Looking back at history, from the 1990s until around 1997, and in the early 2000s, during periods of valuation multiple compression, the market still experienced very strong gains. We must assume that valuations will be compressed, and when conducting bottom-up analysis of each company, we incorporate the assumption of valuation compression. Despite this, we remain quite optimistic about the inflation outlook, mainly due to two factors: first, oil prices, and second, housing prices. You can see that homebuilder KB Home has already cut prices by 7%, and other companies are following suit. Additionally, productivity has improved significantly, and unit labor costs are decreasing sharply. Therefore, there are multiple deflationary pressures at play. The last factor I want to mention is technology. Our focus is entirely on innovation driven by technology, including robotics, energy storage, artificial intelligence (especially so), blockchain technology, and multi-omics sequencing in healthcare. We believe that inflation data is very likely to be below market expectations.”