By Sam Boughedda
ARK Invest Chief Executive Cathie Wood said on Wednesday that the bond market is signaling that the Fed is making a serious mistake.
"The bond market seems to be signaling that the Fed is making a serious mistake. At -80 basis points (as measured by the 10 year vs 2 year Treasury yields), the yield curve is more inverted now than at any time since the early '80s when double-digit inflation was entrenched," Wood warned in a Twitter thread on Wednesday.
Wood also questioned why "economists are not highlighting that an 80bp inversion in the Treasury yield curve today is much more of a red flag for the Fed today than it was in the early '80s."
"As a percent of the 3.5% 10 year Treasury yield, it is ~23% today vs ~5% of 15% in the '80s," she added, explaining that generally, an inverted yield curve is pointing to a recession and/or lower than expected inflation and in her view "deflation is a much bigger risk than inflation."
"Commodity prices and massive retail discounts are corroborating this point of view," said Wood, highlighting the S&P energy sector (NYSE:XLE) price.
"Surprisingly, the S&P energy sector (XLE) price is not far from an all-time high even though the oil price has dropped from $130 per barrel to $74. Meanwhile, many pure play, early stage innovation stocks have dropped below their coronavirus lows. Truth will win out," the ARK Invest CEO concluded.