A January rebound for beaten-down tech shares made for the best month on record for Cathie Wood’s flagship fund.
The ARK Innovation exchange-traded fund ARKK,
rose 27.8% in January, its best monthly performance on record, according to Dow Jones Market Data. The bounce comes after the high-profile and formerly highflying fund suffered a 67% drop in 2022 and a 21% drop in 2021.
The tech-heavy fund soared nearly 149% in 2020 thanks to its bets on early pandemic winners. That strategy suffered last year as the Federal Reserve rapidly hiked interest rates in its bid to get inflation under control. That sent Treasury yields soaring, which tanked growth stocks.
Growth stock valuations are based on expectations for earnings and cash flow far into the future. Rising bond yields make those flows worth less in the present, raising the opportunity cost of holding equities over debt.
Bond yields have pulled back to begin 2023. While the Fed is expected to deliver another rate increase on Wednesday, the central bank is seen downsizing the increase to a quarter of a percentage point after delivering a series of outsize hikes last year.
What’s more, investors disbelieve the Fed will stick to its plan to raise rates above 5% and hold them there for some time, with markets reflecting bets that policy makers will deliver cuts before year-end.
“We’re very happy to see bond yields going down here,” Wood said on Jan. 19 during a quarterly seminar held for followers and investors of her ARK Invest suite of funds.
“Much like in [the] early ’80s, equity markets need to hear the Fed say that it is signaling the end of interest rates moving up,” Wood said, referencing inflation’s peak at around a 40-year high, the highest since the early 1980s.
The Nasdaq Composite COMP,
weighted towards tech and tech-related companies, saw a 10.7% monthly rise, its best January performance since 2001, when it posted a large bear-market rally in the wake of the burst dot-com bubble.
See: Tech stocks are having their best January in decades — here’s why that may not be a good sign
The Dow Jones Industrial Average DJIA,
gained 2.8% in January, while the S&P 500 SPX,
advanced 6.2%.
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