Ark Invest Quarterly Report: Impressive Fund Performance, Bullish on AI But Cautious About Economic Recession

Renowned investor Cathie Wood's ARK Investment, under the flagship of Ark Invest, has released the Q2 ETF report for 2023, showcasing the impressive performance of its funds this year while also expressing concerns about a possible economic downturn.

Ark Believes There Is a Possibility of Economic Recession

In its report, Ark first elaborated on its views on the overall economy, stating that the Federal Reserve has overlooked leading indicators of economic recession and price deflation, with many indicators warning of the possibility of an economic downturn:

• The U.S. Leading Economic Index (LEI), strongly correlated with GDP, has declined for 14 consecutive months
• GDP has declined for two consecutive quarters in 2022, and in the past two quarters, Gross Domestic Income (GDI) has also been declining continuously, which should typically align with GDP trends.
• Manufacturing activity is contracting at an accelerating pace
• According to the Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), banks' willingness to lend is sharply decreasing
• The personal savings rate has dropped from 9.3% before the COVID pandemic to 4.6%
• Credit card balances have reached a historical high of about $1 trillion. Over the past decade, credit card interest rates have doubled to 20-21%, and with student loan repayments set to resume in October this year, it will further squeeze consumer purchasing power.
• Commercial real estate mortgage default rates in major U.S. cities are rising
• The rapid rise in interest rates has led to a 4.2% year-on-year decline in bank deposits

In Ark's view, the Federal Reserve makes decisions based on lagging indicators, namely employment and inflation, but rapid rate hikes may have already harmed the U.S. economy.

Optimism Persists for AI

The Ark report points out that global stock markets rose in the second quarter, largely driven by NVIDIA's guidance exceeding expectations, benefiting from innovative applications of Artificial Intelligence (AI) and ChatGPT. The increasing demand for AI hardware suggests that software revenue growth will accelerate significantly. With companies developing AI-driven products and services, Ark estimates that by 2030, for every $1 spent on AI hardware, software could generate up to $8 in revenue. In what could be an opportunity for "winner-takes-all," Ark believes that companies with vast proprietary data and widespread distribution should be best positioned to leverage AI applications and gain productivity boosts associated with generative AI.

Comparison of ARK's Performance in the First Half of the Year

With the strong rise of AI concept stocks this year, ARK's funds also performed remarkably well, with gains of 37% to 52% year-to-date, outperforming the S&P 500 index at 15.9% and the tech-heavy Nasdaq at 31.73%.

However, based on previous market statistics, the gains of Bitcoin and Ethereum seem to have been more outstanding! The top-performing stocks in ARK's announced funds include Tesla, NVIDIA, GBTC, while Block SQ has contributed negatively.