Falling stocks are a sign that the Fed could trigger a financial crisis: Cathie Wood

  • Cathie Wood said falling stocks and bonds could be a harbinger that the Fed could trigger a financial crisis.
  • The S&P 500 fell more than 2% on Tuesday and has fallen about 12% this year, while bonds have slumped.
  • Ark CEO Wood also said the sharp rise in the dollar, caused by Fed rate hike expectations, was a problem for the global economy.

The sharp drop in stocks and bonds is a harbinger that the

Federal Reserve

could trigger a financial crisis by aggressively raising interest rates, said Cathie Wood, CEO of Ark Invest.

Stocks plunged in April and bonds fell in 2022, as investors bet the Fed will hike rates to slow growth and tame searing inflation.

The S&P 500 slid 2.8% on Tuesday as investors took stock of corporate earnings and worried about the economy. The benchmark U.S. stock index was down 9.2% over the past month as of Wednesday morning.

“Stocks and bonds appear to be warning the Fed that its policy actions could cause an economic and/or financial crisis: stocks are fading and the yield curve is almost [in] negative territory,” Wood tweeted Tuesday.

Wood’s comment came the same day Deutsche Bank predicted a major US recession in a research note. The bank said the Fed would need to raise rates above 5%, from the current level of 0.25%, to keep inflation under control.

The CEO of Ark Invest also said that the recent strong rise in the dollar was a warning signal and that it was becoming a problem for the global economy. The dollar index rose 7.44% in 2022 to 103.10 on Wednesday.

“Another metric suggests Fed policy is already too restrictive: the dollar,” Wood said. “Against expectations, the dollar is up more than 13% from its low last year, a real burden for emerging markets and others 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 raise interest rates have weighed heavily on his company’s investment funds.

ETF Ark Innovation, which specializes in investing in technology companies, has fallen nearly 50% this year. It was down nearly 70% from its February 2021 peak on Wednesday.

Expectations that the Fed will raise rates drive bond yields higher. This makes many tech stocks, which are not yet generating much profit, look relatively less attractive.

The tech-heavy Nasdaq index plunged 4% on Tuesday to its lowest level since December 2020.

Read more: GOLDMAN SACHS: These 6 charts show whether a recession will be needed to rein in soaring inflation


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