Cathie Wood: the market is turning toward innovation again. It's not just AI

The innovation sector is regaining its role as one of the key drivers of the global economy - after three years under pressure from inflation and high interest rates, says Cathie Wood. In the third quarter report for her ARK Invest fund group, the investor notes that the market is shifting from fighting rising prices to developing through productivity, with capital once again flowing into companies that create technological efficiencies. The performance of ARK's six innovation-investing funds confirmed this shift: they ended the quarter outperforming global indices.

Cathie Wood, founder of ARK Invest, believes that the global economy is entering a new phase - a deflationary phase, where growth is driven by technological productivity rather than price increases. After a cycle of tight monetary policy, companies have lost the ability to shift costs to the consumer and are now looking for new ways to preserve profits - through innovation, automation and energy-efficient solutions. Against this backdrop, Wood notes, the market is rethinking the potential of those who can create efficiencies rather than depend on the cost of capital, and is returning interest in the assets of innovative players that sagged during the high Fed Funds rate environment.

She attributes the shift to a change in U.S. economic policy. The "Big Beautiful Budget Act" passed in the summer reduces the tax burden for businesses, extends some benefits and introduces accelerated depreciation of investments. These measures, according to ARK's assessment, make the country more attractive for investment, while regulatory relaxations in the areas of cryptocurrencies, artificial intelligence and healthcare strengthen the position of companies engaged in innovation. Even the strengthening of the dollar, contrary to expectations, works in favor of deflationary trends and supports the technology sector.

All of this, according to Cathie Wood, is creating the conditions for a new investment cycle. With moderate inflation and weakening demand, technology is becoming a key adaptation mechanism: companies that can improve efficiency are able to remain profitable even in a slowing economy.

In Wood's view, it is not a matter of a brief blip, but the beginning of a sustained growth cycle. She expects an end to the "rolling recession" that began in the spring of 2022 after a sharp rise in interest rates. As the economy stabilizes and duty, tax and interest rate policies become more predictable, innovative companies have room for long-term growth.

According to Wood, it is the transitional periods, when the economy is emerging from recession and uncertainty persists, that create the best conditions for technological leaps. "It is in times of turbulence that innovation gains momentum. When fear gives way to opportunity, growth begins," she summarizes.

According to Wood, market dynamics show that ARK's strategic choice proved to be justified. Its funds focus on five areas - artificial intelligence, robotics, energy storage, blockchain and multomics (technologies for complex analysis of biological data, the next stage after DNA sequencing). These areas reduce costs, increase productivity and form the basis for long-term growth, Wood says.

Third quarter results confirmed this: all six ARK ETFs returned above global stock indices. The flagship ARK Innovation ETF added 11% versus 6% for the MSCI World index, while ARK Next Generation Internet gained almost 10%.

At the same time, the main contribution to the funds' results was made by companies from the key areas of ARK's strategy. Investments in Tesla and Kratos Defense supported the autonomous technologies and robotics fund, Robinhood and Tesla - the next generation internet, CRISPR Therapeutics and Tempus AI - the biotechnology sector. The fintech fund was boosted by Shopify and Robinhood, while the aerospace fund was backed by Rocket Lab and Kratos Defense.

This article was AI-translated and verified by a human editor