ARK Invest chief executive Cathie Wood stated that the U.S. economy is on the verge of a significant rebound following years of strain caused by policy decisions. She believes that technological deflation, fueled by artificial intelligence and digital assets, has the potential to fundamentally alter economic growth, inflation, and capital markets over the next decade.
In an investor note released on Saturday, Wood characterized the past three years not as a period of economic resilience, but rather as a "rolling recession." She explained that this period quietly compressed various sectors, including housing, manufacturing, capital spending, and consumer sentiment, as a direct consequence of the Federal Reserve's aggressive interest rate hikes.
Wood suggested that with these pressures now integrated into the economic landscape, the economy is akin to a "coiled spring." This analogy implies a capacity for substantial growth to be unleashed as inflation, interest rates, and regulatory limitations begin to ease.
Productivity, Not Speculation, At The Center Of The Thesis
Wood countered the notion that the current AI boom has already reached speculative bubble levels. Instead, she argued that the sector is still in its nascent economic stages.
She highlighted significant reductions in the costs associated with AI training and inference, alongside increasingly rapid adoption across various industries. These developments, according to Wood, are indicators that productivity gains are just beginning to manifest.
ARK's analysis indicates that the convergence of innovation platforms, encompassing AI, robotics, energy storage, blockchain technology, and genomic sequencing, could propel U.S. productivity growth to an annual rate of between 4% and 6% in the coming years.
Wood believes that such productivity increases would exert sustained downward pressure on unit labor costs. This, in turn, would enable economic growth to accelerate without triggering a resurgence of inflation.
This economic dynamic presents a challenge to conventional macroeconomic assumptions, which typically posit that faster growth is achieved at the expense of price stability.
Capital Spending Shifts From Ceiling To Floor
Wood also drew attention to a structural transformation occurring in capital investment.
Following a prolonged period of stagnation after the tech and telecom downturn, capital spending experienced a surge during the pandemic. ARK's perspective is that this spending has now established a higher baseline rather than representing a temporary peak.
She contended that policy adjustments, such as accelerated depreciation, lower effective corporate tax rates, and deregulation, could further bolster this trend. These changes are expected to support what ARK views as a historically significant investment cycle, primarily driven by advancements in technology infrastructure and manufacturing.
Bitcoin and Markets in a Deflationary Growth Era
The investor note also delved into asset allocation strategies, drawing a contrast between the recent rise in gold prices and the supply-constrained nature of Bitcoin. Wood suggested that Bitcoin's low correlation with traditional assets positions it as a potential diversifier within a productivity-driven economic expansion, rather than solely as a hedge against financial crises.
Wood framed the upcoming years as a departure from the economic patterns observed since the 1970s. She posited that technological deflation could facilitate a scenario where economic growth, declining inflation, and lower long-term interest rates coexist. This is a prospect that financial markets may not yet be fully anticipating.