Cathie Wood Buys Stocks Even as Treasury Yields Exceed 5%..."This is the Real Normal"

▲ Cathie Wood / AI-generated image

The US 10-year Treasury yield has surpassed 5%, increasing market tension. However, Cathie Wood, CEO of ARK Invest, a prominent tech stock investor, offered an unconventional diagnosis that the stock market has ample room for further upside.

According to crypto media outlet BeInCrypto on September 30 (local time), CEO Cathie Wood argued that the stock market can continue its rally even as the 10-year Treasury yield reached 5.18%. Wood analyzed that during periods when interest rates hovered between 0.5% and 2%, the market was not functioning properly but was under the artificial control of the Federal Reserve (Fed). She stated that an interest rate environment of 5% or more is a signal that market functions have normalized.

She explained that the current level of interest rates is not unusual from a historical perspective. Wood presented long-term historical data spanning 230 years, pointing out that the ultra-low interest rate environment from 1981 to 2021 was an anomaly, and before the Great Depression, Treasury yields of 5% to 6% were considered perfectly normal. She also recalled the precedent of long-term growth stocks experiencing strong gains even when the Fed implemented tightening in 2017.

Wood diagnosed that productivity improvements driven by innovative technologies such as artificial intelligence (AI) and real economic growth justify the rise in long-term Treasury yields. Her view is that the improvement in real economic growth rates due to technological revolution, rather than inflationary pressures, is driving the rise in interest rates. She suggested that, considering the trend of decelerating inflation and real growth, investors should move beyond the traditional 60% stock to 40% bond asset allocation model and more boldly increase their stock allocation.

Some parts of the market still identify the pressure on tech stock valuations due to prolonged high interest rates and the possibility of further Fed benchmark interest rate hikes as key risk factors. Conversely, some institutions, such as Goldman Sachs, are recommending an increased allocation to AI tech stocks over bonds. Thus, there is a strong divergence of views, with some anticipating improved performance from innovative technology companies even in a high-interest-rate environment.

[Key Article Summary]

-Cathie Wood diagnosed that despite the 10-year Treasury yield rising to 5.18%, the stock market's upward trend can continue.

-She presented historical data showing that ultra-low interest rates in the 0% range were abnormal, and 5% to 6% interest rates were normal before the Great Depression.

-Based on expanded real growth driven by technological revolution, she called for increasing the proportion of stocks over traditional asset allocation.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*