Cathie Wood Foresees Great Depression-Like Flight to Safety in Today's Stock Market

On Thursday, Nvidia’s highly anticipated earnings report exceeded expectations, benefiting its investors. However, the rest of the market declined due to rising interest rates following better-than-expected economic data.

Cathie Wood, CEO and CIO of ARK Invest, offered her insights on this market behavior. “In our view, the search for cash and safety in the equity markets today is as intense as it was during the Great Depression in the early 1930s,” she commented on the social media platform X. Wood added, “When fear dissipated, the market broadened out and rewarded risk-taking once again.”

Wood’s statement is particularly noteworthy given her history with Nvidia (NVDA). She famously sold most of her stake in the stock just before its significant rise driven by demand for artificial intelligence. This year, Nvidia has soared by 110%, while Wood’s flagship fund, the ARK Innovation ETF, has dropped 17%, affected by underperforming top holdings like Tesla (TSLA), Roku (ROKU), Block (SQ), and UiPath (PATH).

Market Concentration as Evidence of Safety Search

Wood argues that the current market concentration indicates a search for cash and safety. One striking piece of evidence is that Nasdaq 100 companies now represent 45% of the S&P 500. According to Wood, “The Nasdaq used to be a fertile ground for mid-to-large range companies, the innovators and disruptors. However, we feel the Nasdaq 100 now does very little of that.”

Supporting Data and Analysis

The weight of Nasdaq 100 companies in the S&P 500 has grown significantly, now at 45%, up from 13% in 2002.

The market cap disparity between the largest stock and the 75th percentile stock is at its highest level since 1932, indicating a high concentration of market value in a few large companies.

Risk sentiment gauges show a strong preference for safer assets, with the U.S. dollar and S&P 500 leading in risk-off sentiment, while oil and gold show higher risk-on sentiment.

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Source

Catherine Wood (2024). Market Watch. Available at: https://www.marketwatch.com/story/cathie-wood-sees-a-great-depression-like-search-for-safety-in-the-stock-market-0119ed4e