US rolling recession should lead to 'healthier bull market'

A US “rolling recession” should lead to a productivity-led economic boom and a healthier bull market, according to a statement by Cathie Wood, founder, chief executive and chief investment officer of ARK Invest.

Wood shared her views in a letter to investors – and stated that while many economists are forecasting a recession that could extend into 2026, ARK believes that the “stealth recession” in place for the past three years will end soon.

She believed that this “will be followed not only by a productivity-led economic boom but also a healthy, broader-based bull market” – and “deep value territory, technologically-enabled innovation” should be one of the prime beneficiaries.

Wood stated that three years ago the Federal Reserve “pushed the US economy into a rolling recession that pummelled all except the high end-consumer and the government sectors”.

The ARK Invest CEO and CIO added that while many economists are beginning to forecast a US recession extending into 2026, ARK research suggests that the “rolling recession that has been in place for the past three years should end with clarity on tariff, tax, regulatory, and monetary policies during the next three-to-six months”.

Wood also stated that if the current tariff turmoil results in freer trade, as tariffs and non-tariff barriers come down in tandem with declines in other taxes, regulations, and interest rates, then real GDP growth and productivity “should surprise on the high side of expectations at some point during the second half of this year”.

She further said: “During the current turbulent transition in the US, we think consumers and businesses are likely to accelerate the shift to technologically enabled innovation platforms including artificial intelligence, robotics, energy storage, blockchain technology, and multiomics sequencing.

“Assuming the tariff turmoil subsides during the next six to nine months, we believe the narrowest ‘bull market’ in history should give way to a much broader-based and healthier bull market. Inflation should continue to surprise on the low side of expectations, supported by the price deflation that we expect will be associated with the five innovation platforms described above.

“To the extent they are enacted, the impact of tariffs is likely to be ‘transitory’, according to Fed Chairman Powell. At the same time, news about deregulation, tax cuts, and lower interest rates is likely to be hitting the headlines. If they are made effective either retroactively or in real-time, they should catapult the economy into the accelerated growth trajectory that every technology revolution has spawned.”

ARK also discussed how in the early 2000s, the market sold off for more than three years after “irrational exuberance” sent technology and biotech stocks soaring years before their underlying businesses were ready for prime time. For example, the cost to sequence one whole human genome was prohibitive, the first in 2003 $2.7 billion. Today, the cost is below $500.

Wood believed that these technologies were now “ready for prime time”.

She added: “Investors are making what we believe is a mistake that is an inversion of the one made during the tech and telecom bubble. Investors did not fare well by chasing any stock associated with the internet during the late nineties as the tech and telecom bubble turned into a bust.

“Now, clinging to the broad-based benchmarks against which they are measured, most investors are ‘short’ the stocks of companies that literally are creating the new world. In our view, that decision ultimately will be deemed less than productive during the next few years.”