Cathie Woods funds are hit hard in the morning before recovering as tech trading stumbles
Crystal Mercedes | CNBC
Some called it the “Cathie Wood Sale”.
On Tuesday open, the top names at Ark Investment Management were the biggest declines in the market.
The stocks of Palantir, Tesla, Roku, Square, Paypal, Teladoc, Baidu, Zillow, Shopify, and Spotify were all down sharply, in many cases double digits. All were significant holdings in funds such as their flagship Ark Innovation ETF (ARKK) and the Next Generation Internet ETF (ARKW).
Shortly after opening, their flagship Ark Innovation Fund fell 11%. By 10 a.m. ET, half an hour after opening, the company had already traded more than 8 million shares, a full day’s volume. By noon it had traded 30 million shares.
And then, half an hour after opening, sales subsided. The fund closed 3.3% and fell about 10% over the week.
“It was like a mini-panic,” Tactical Alpha’s Alec Young told me. “The market worries that the Fed is risking falling behind the inflation curve. The market is factoring in more inflation, which means lower prices for technology stocks.”
The market stopped falling when the testimony of Federal Reserve Chairman Jay Powell was released in Congress. Powell has repeatedly insisted that he does not expect inflation to rise to problematic levels: “Monetary policy is accommodative and must remain accommodative,” he said.
Too many people on the boat?
Even so, the damage had already been done. Fear of higher interest rates may have been a first catalyst, but now, as Peter Tchir of Academy Securities told me, “People are very aware that they are a lot of very high-valued stocks for a long time.”
“The foam is now the catalyst, not the rate,” he told me. As for the current mania with everything Cathie Wood and Ark Investments have to offer, Tchir released a play on Tuesday called “Noah’s Ark?” For customers who tell me, “Too many people are on this boat. I think a lot of people have bet more than their risk appetite allows.”
Ark Innovation is around 13% below its most recent high.
“I don’t think this is over, I think this could be the beginning of a relaxation. Everyone assumed these are super safe companies. Their style of leadership has been to double their bets and a lot of it is starting to roll over Feeling little evangelical. People now see these funds as not to be lost, and that’s where you get into trouble, “said Tchir.
Most of the top ten positions in Ark Innovation lagged the Nasdaq on Tuesday before recovering.
Wood didn’t respond to a request for comment on Tuesday’s trade, but in an interview on CNBC last week she made it clear that on days or weeks when her favorite stocks fell sharply, she was often a buyer: “We’ll be as a respected liquidity provider, that is, if people sell we will buy and if people buy, and these are retail and institutional investors, we will likely take profits, “she said.
Regarding interest rate concerns, she also made it clear that a strong rebound would undoubtedly damage her portfolio: “I believe if interest rates rose sharply we would see valuation revaluations and our portfolios would be prime candidates for this valuation reset . “