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According to Japans Fuji News Network: Sanae Takaichi will appoint Katayama Satsuki as Japans Minister of Finance.1. All three major U.S. stock indices closed higher, with the Dow Jones Industrial Average up 1.12%, the S&P 500 up 1.07%, and the Nasdaq up 1.37%. Salesforce rose over 4%, led by Apples nearly 4% gain. The Wind S7 Index rose 1.44%, with Facebook up over 2% and Tesla up over 1%. Chinese concept stocks generally rose, with iQiyi up over 8% and 21Vianet up about 7%. 2. All three major European stock indices closed higher, with Germanys DAX up 1.8%, Frances CAC 40 up 0.39%, and the UKs FTSE 100 up 0.52%. 3. U.S. Treasury yields fell across the board, with the 2-year Treasury yield falling 1.47 basis points to 3.451%, the 3-year down 1.67 basis points, the 5-year down 2.44 basis points, the 10-year down 3.45 basis points, and the 30-year down 3.80 basis points. 4. International precious metal futures generally closed higher, with COMEX gold futures up 3.82% at $4,374.30/oz and COMEX silver futures up 2.59% at $51.40/oz. The US government shutdown and expectations of a Federal Reserve rate cut have boosted golds safe-haven appeal. The EUs energy policy shift has heightened inflation expectations, and central banks around the world continue to increase their gold reserves. 5. The main US oil contract closed down 0.38% at $56.93/barrel, while the main Brent crude contract fell 0.57% to $60.94/barrel. 6. Most of the base metals in London rose, with LME zinc futures up 1.45% at $2,976/ton, LME lead futures up 1.22% at $1,994/ton, LME copper futures up 1.02% at $10,712.50/ton, LME tin futures up 0.75% at $35,300/ton, LME nickel futures up 0.69% at $15,230/ton and LME aluminum futures down 0.40% at $2,766.50/ton.According to the Wall Street Journal: A group of banks including JPMorgan Chase, Bank of America and Goldman Sachs are working to raise $20 billion in loans for Argentina.On October 21st, the Russian Ministry of Defense reported on the 20th that Russian forces had taken control of the Lenino settlement in the Donetsk region. Over the past day, Russian forces continued operations in multiple directions, including Sumy, Kharkiv, and Donetsk, striking targets such as energy facilities supporting the Ukrainian defense industry, drone storage sites, and temporary deployments of Ukrainian troops. Russian air defense systems shot down three guided air-to-air bombs and 129 fixed-wing drones. On the same day, the General Staff of the Ukrainian Armed Forces reported that 168 engagements had taken place in the frontline areas over the past day, with Ukrainian forces repelling Russian offensives launched from multiple directions. Ukrainian Air Force, missile units, and artillery units struck Russian personnel, weapons, and military equipment concentrations, as well as drone control points and artillery positions.On October 21st, the U.S. Senate voted on the government funding bill for the 11th time on October 20th local time, but still failed to pass it, thus continuing the U.S. government shutdown that began on October 1st. The bill was originally intended to extend government funding until November 21st, but ultimately failed to reach the 60 vote threshold required for passage with 50 votes in favor and 43 votes against.

As Fed Hikes Rates, Will ARKK Continue to Sink?

Skylar Shaw

Apr 22, 2022 10:25

Cathie Wood's primary fund, ARKK, the ARK Innovation ETF, is down about -45 percent year to date, compared to the US Nasdaq 100, which is down roughly -16 percent.


When interest rates rise, companies with limited sales and incomes suffer the most.


ARKK may be having trouble owing to the profile of firms in which it invests, which is mostly linked to the present market situation.

INFLATION WEIGH ON US STOCKS, FED HIKES

Over the last few months, the fundamental backdrop for risk appetite has deteriorated: the global supply chain is in disarray; commodity prices have risen, threatening both companies' margins and consumers' spending power; and central banks have pressed ahead with reducing stimulus and tightening monetary policy.


It will be difficult for US equities markets to continue a strong rebound unless this underlying narrative changes. More precisely, in this context of less fiscal stimulus, tighter monetary policy, and squeezed company margins due to rising inflation, equities with lower sales and poorer profit profiles tend to be weighed down. 


Companies that are still in the early phases of development, those attempting to make breakthroughs that will revolutionize sectors or the economy — younger tech stocks, for example – suffer even more.

IN 2022, HOW HAS ARKK PERFORMED?

ARKK is the best example of this problem. "ARK defines 'disruptive innovation' as the launch of a technologically enabled new product or service that has the potential to revolutionize the way the world functions," according to the ARKK prospectus. 


Companies in ARKK rely on or benefit from the development of new products or services, technological advancements, and scientific research in the areas of DNA Technologies and the 'Genomic Revolution,' Automation, Robotics, and Energy Storage, Artificial Intelligence and the 'Next Generation Internet,' and Fintech Innovation."

CATHIE WOOD, HAS SHE LOST HER GOLDEN TOUCH?

'Yes,' is the easy and obvious response. After all, ARKK is severely underperforming the Nasdaq 100 in the United States.


However, the accurate and nuanced response is 'no, not necessarily.' Cathie Woods' investments are typically growth-oriented bets on the future: these companies are often newly founded, having recently gone public, and lack significant established revenues and cash flows, as well as significant pricing power within their industries (what Warren Buffet refers to as a company's "moat," akin to a castle's defense).


In fact, the firms that ARKK holds in its portfolio are exceptionally 'long duration' assets (yes, stocks by nature are long duration; but fledgling companies, particularly in the tech sector, to be on the longer end of the continuum). Duration may be thought of as follows: if I invest $1 now, how long will it take me to receive my money back? When interest rates rise, assets with longer maturities suffer more; this is particularly true for bonds.


The underperformance of ARKK in 2022 has less to do with Cathie Wood and more to do with the unique style component of its investments — assets that suffer greatly during times of increasing interest rates.

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