Wood warns that inflation data will be below expectations: multiple deflationary pressures are mounting, and the market may face valuation compression

ARK Invest founder Cathie Wood recently stated that the market’s judgment on inflation trends shows a clear bias. Although the inflation decline has been evident over the past few years, official data has stagnated, causing confusion among investors. She believes that inflation data is likely to be lower than market expectations and points out that multiple deflationary pressures are at play. This viewpoint offers important insights for market valuation and asset allocation.

The Real Dilemma of Inflation Expectations

Data Stagnation and Disconnection from Trends

Wood highlights a key contradiction: in actual economic operations, the downward trend of inflation is very clear, yet official report data remains stagnant. This disconnect makes it difficult for market participants to accurately judge the true inflation trajectory. She suggests that such misjudgments could lead to overly pessimistic expectations about the economic outlook.

Multiple Deflationary Pressures Are Forming

Wood lists several key sources of deflationary pressure:

Particularly noteworthy is that homebuilder KB Home has reduced prices by 7%, with others following suit, indicating that a key inflation indicator—housing prices—is undergoing a substantial adjustment. Meanwhile, productivity gains and a sharp decline in unit labor costs lay the foundation for long-term deflation.

Challenges Facing Market Valuations

Historical Lessons on Valuation Compression

Wood emphasizes that current market valuations are near all-time highs, which appears to be a prelude to a correction. However, she points out that historical experience shows this does not necessarily mean the market will decline. During the late 1990s to around 1997, and in the early 2000s, even as valuation multiples contracted, the market still experienced very strong rallies.

Adjustment of Investment Strategies

For this reason, Wood states that ARK incorporates valuation compression assumptions into bottom-up analysis of each company. This means that even if valuation multiples shrink, companies with sufficiently strong fundamentals can still deliver good returns.

Long-term Opportunities Driven by Technology

The Five Pillars of Innovation Platforms

According to Wood’s 2026 outlook, crypto assets and public blockchain technology are regarded as one of the five core innovation platforms, alongside AI, robotics, energy storage, and multi-omics medicine. These technologies are driving record capital expenditures and are also helping to curb inflation by boosting productivity.

The Allocation Value of Crypto Assets

Wood believes that Bitcoin, due to its low correlation with major asset classes (correlation with gold is only 0.14), is an effective diversification tool for investment portfolios. In the context of downward inflation expectations and valuation compression, the allocation value of such low-correlation assets may increase.

Possible Market Reactions

When inflation data is officially released, if it indeed falls below market expectations, it could trigger several chain reactions:

• Reassessment of economic outlook, potentially easing recent pessimism
• Repricing of Federal Reserve monetary policy prospects
• Increased attractiveness of tech and growth stocks
• Rising demand for low-correlation assets like Bitcoin

Summary

Wood’s view points to an important market reality: inflation data may be downwardly revised, and multiple deflationary pressures are accumulating. Although market valuations face compression risks, historical experience shows this does not necessarily lead to market declines. The key factors are whether corporate fundamentals are strong enough and whether they can benefit from technological innovation. For investors, this is an opportunity to reassess asset allocation, especially by paying more attention to assets with low correlation to mainstream assets.