ARK Invest CEO Cathie Wood asserts that equity markets can maintain growth despite 10-year Treasury yields exceeding 5%. According to data shared by Frank Downing, the 10-year yield reached 5.18% while the S&P 500 index stood near 7,743. Wood suggests that current rates indicate a market operating independently of Federal Reserve control, contrasting this with the period between 2017 and the era of low rates from 0.5% to 2%.
Drawing on 230 years of historical data, Wood argues that the decline in rates from 1981 to 2021 was an anomaly. She anticipates long-term yields will stabilize between 5% and 6%, while short-term rates may climb to 6% to 8% as productivity increases. Wood notes that independent trackers like Truflation reported July headline inflation at 2.5%, lower than the government's 3.7% PCE index figure.
Based on these projections, Wood suggests that investors might increase stock allocations beyond the traditional 60/40 portfolio split. This perspective aligns with views from Goldman Sachs' Anshul Sehgal, who has expressed a preference for AI assets over bonds. However, market analysts like Michael Contopoulos of Janus Henderson warn that rising yields and Fed tightening could signal that the market is nearing a peak.
