Cathie Wood says rising rates hit her strategy like an earthquake and cyclical stocks are next

Ark Invest’s Cathie Wood said rapid interest rate hikes over the past year are now starting to hit cyclical pockets of the market, extending beyond her strategy to invest in companies offering what she calls disruptive technology. “The valuation hit … has been so severe to our strategy, … and that was all related to the Fed jacking up interest rates nineteenfold in less than a year. Unprecedented,” Wood said Tuesday on CNBC’s ” Squawk on the Street .” Starting in March 2022, the Federal Reserve raised its federal funds target range to 4.5%-4.75%, the highest since October 2007. Market pricing suggests that the central bank likely will approve another quarter percentage-point rate increase Wednesday. Wood’s flagship Ark Innovation ETF (ARKK) has fallen nearly 38% in the past 12 months. Higher interest rates make stocks with lofty valuations less attractive by hurting the present value of promised future profits. ARKK 1Y mountain Ark Innovation ETF The widely followed investor said economically sensitive stocks, which have fared better in the face of rising rates, could soon begin to feel the pain from an economic slowdown and possible U.S. recession. “It’s like an earthquake, not just for our strategy, actually. We now think the earthquake is rolling off of our strategy and into other strategies and those that are cyclical,” Wood said. “We think [they] are going to face some quite severe challenges during the next … six to nine months.” Energy, for example, a classic cyclical sector, is the only S & P sector in the green over the past 12 months, with a 5% gain. Year to date, the group is down 9%, underperforming the broader market. ARKK has rebounded nearly 27% this year, led by the comeback in holdings such as Tesla, Coinbase, Roku and Roblox.