The slide in stocks is a sign the Fed could trigger a financial crisis, Cathie Wood warns
- Cathie Wood has said the slide in stocks and bonds could be a warning sign that the Fed could trigger a financial crisis.
- The S&P 500 dropped more than 2% Tuesday and has tumbled around 12% this year, while bonds have crashed.
The sharp drops in stocks and bonds is a warning sign that the Federal Reserve could trigger a financial crisis by hiking interest rates aggressively, Ark Invest CEO Cathie Wood has said.
Stocks have plunged in April, and bonds have tumbled across 2022, as investors bet that the Fed will raise rates hard to slow growth and tame red-hot inflation.
The S&P 500 slid 2.8% Tuesday as investors took stock of company earnings and fretted about the economy. The benchmark US stock index was down 9.2% over the last month, as of Wednesday morning.
"Equities and bonds seem to be warning the Fed that its policy measures could cause an economic and/or financial crisis: equities are swooning and the yield curve is nearly [in] negative territory," Wood tweeted Tuesday.
Wood's comment came on the same day Deutsche Bank predicted a major US recession in a research note. The bank said the Fed would have to increase rates to above 5%, from the current level of 0.25%, to get a grip on inflation.
The Ark Invest CEO also said the recent sharp rise in the dollar was a warning signal, and is becoming a problem for the global economy. The dollar index has risen 7.44% in 2022 to 103.10, as of Wednesday.
"Another metric suggests that Fed policy already is too restrictive: the dollar," Wood said. "Against expectations, the dollar has increased more than 13% from its lows last year, a real burden for emerging and other markets with dollar-denominated debt, and a powerful deflationary force."
Wood is unlikely to be a fan of Fed policy, given that the central bank's plans to hike interest rates have weighed heavily on her company's investment funds.
The Ark Innovation ETF, which specialized in investing in technology companies, has fallen almost 50% this year. It was down almost 70% from its February 2021 peak as of Wednesday.
Expectations that the Fed will hike rates push up bond yields. That makes many technology stocks, which are not yet delivering much in the way of profits, look relatively less attractive.
The tech-heavy Nasdaq index plunged 4% Tuesday to its lowest level since December 2020.