The following article, Cathie Wood Harps On Deflation Risk After Fed's Powell Tones Down Inflation Commentary — Says These Investment Bets Will Be 'Biggest Beneficiaries', was first published on Flag And Cross.
Fund manager Cathie Wood said a deflationary trend is playing out, in line with her past assertions, and highlighted long-term stocks and bonds as best bets in such an environment.
What Happened: Commodity prices today are where they were 40 years ago and were resuming the deflationary trend that was in place since 2008, Wood said in a post on X, formerly Twitter.
To make her case, she shared the chart of Bloomberg’s diversified commodity price index. She clarified the chart used nominal values and was not inflation-adjusted.
The fund manager noted that many investors are betting “higher for longer” on inflation and interest rates, as they focus on years of zero percent interest rates. In the process, they are betting against long-duration fixed income and equity strategies, she said.
“This chart is beginning to fly in the face of that outlook,” she added.
According to Bloomberg’s diversified commodity price index, commodity prices today are where they were 40 years ago and are resuming the deflationary trend in place since 2008. This chart is nominal, not inflation-adjusted! pic.twitter.com/Pjv5fuE1OJ
— Cathie Wood (@CathieDWood) November 1, 2023
Following a pause decision announced Wednesday, Federal Reserve Chairman Jerome Powell said in a press conference that followed that progress has been made on inflation and inflation expectations “were in a good place.” The risks were now “more two-sided” and almost “balanced,” he added.
Why It’s Important: Wood said she believes deflation is the biggest risk today. If that is the case, the fund manager sees pricing power disappearing. “Big wage hikes will not feed inflation, but will slam margins,” she added.
“Long-duration stocks and bonds should be the biggest beneficiaries in that environment,” Wood said. Long-duration equities are stocks that have strong fundamentals and offer attractive returns over time.
Her view comes against the backdrop of increasing short bets against large-cap tech stocks. CNBC Mad Money host Jim Cramer said on Wednesday that each of the biggest eight biggest mega-cap tech stocks are set up like bowling pins.
The iShares TIPS Bond ETF (NYSE:TIP), an exchange-traded fund that tracks the investment results of an index composed of inflation-protected U.S. Treasury bonds, ended Wednesday’s session up 0.87% at $103.24, according to Zenger News Pro data.
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