Every "Employment Report Friday," the market holds its breath for clues about the economic trend. Recently, the U.S. economy seems to be on an unusual track; although overall data has not shown a complete recession, several industries have already entered a winter phase. Ark Invest founder Cathie Wood provides a deep analysis of the content in her investment letter, revealing the economy's "rolling recession," corporate labor hoarding behaviors, the dual-edged role of AI and automation, and why the current gloomy sentiment may be a prelude to the revival of an innovative economy.
Labor force hoarding phenomenon: Companies are still holding on, but pressure is brewing.
Despite the robust appearance of the employment report, this analysis points out that the reason companies have not engaged in large-scale layoffs is not due to a strong economy, but rather a "post-COVID labor panic" that makes companies reluctant to easily let go of employees. Unless corporate profit margins begin to decline significantly, a wave of layoffs is unlikely to occur for the time being. However, if the anticipated trend of deflation materializes, marginal pressures will force companies to accelerate the replacement of labor with capital (such as automation).
Automation and AI: Creating Jobs? Or Replacing Jobs?
Despite the massive "job loss panic" triggered by automation and AI technologies, the letter emphasizes that history shows technology is ultimately a net creator of jobs. The example of agricultural automation is the best proof that in the future, AI and robots will enhance overall productivity, benefiting the economy and the labor market in the long run.
The Truth About Rolling Recession: Industries Fall Behind One After Another
This "invisible recession" has actually been going on for years. From the housing market, automobile manufacturing, manufacturing industry to capital equipment spending, all have stagnated or even contracted. High-end consumer spending and government expenditure were originally the last two pillars supporting the economy, but they are now also beginning to waver.
Real estate market: Affected by high interest rates, home sales have plummeted by about 39% from their peak, and homeowners with ultra-low interest rate mortgages are unable to upgrade.
Automobiles: Under the double pressure of the pandemic and tariff policies, sales briefly rebounded before declining again.
Manufacturing and capital expenditures: Continuing sluggishness, marking the weakest performance since expansion began.
Small businesses and low-income individuals: confidence is lower than during the pandemic
The small business optimism index has fallen below levels seen during the COVID period, nearing the lows of the 2008 financial crisis. Consumer confidence has also generally declined, especially among low-income groups who are deeply entrenched in pessimistic sentiments, even anticipating a heightened risk of unemployment in the future.
Interest Rates and Monetary Policy: The Aftermath of the Most Aggressive Rate-Hiking Cycle in History
The Federal Reserve raised interest rates 22 times in 16 months, marking a historical first. Despite the starting interest rate being extremely low (0.25%), such a significant jump still had a huge impact on businesses and consumers, indirectly contributing to what is known as a rolling recession. With the peak of interest rate pressure having passed, the market expects up to four rate cuts this year.
Yield curve inversion: a classic sign of recession reappears
Historical data shows that almost every time the yield curve inverts, it is followed by an economic recession. This time, the inversion lasted longer, and now that the curve has begun to normalize, it may instead be one of the signals that a recession is already occurring.
Is deflation about to arrive? Market signals are pointing towards a price decline.
Whether it is the leading indicator of consumer prices "True Inflation CPI" or the velocity of currency circulation, both indicate that economic pressure is accumulating. In particular, China's economic weakness and export deflation may pull the global economy into a deflationary environment. This will limit the space for the Federal Reserve to tighten again, instead providing opportunities for growth assets.
Three major headwinds lifted? The value of innovative stocks emerges.
This letter believes that the three major headwinds hindering innovative investment strategies: high interest rates, market concentration, and high valuations, are gradually dissipating.
Interest rates: Entering a rate cut cycle, favorable for growth stocks.
Market concentration: The bull market, which was previously dominated by the "six major tech stocks", will expand to include more "true innovators" in the future.
Valuation pressure eases: The price-to-earnings ratio of innovative stocks has significantly retreated, approaching historical lows, indicating that "innovative stocks are on sale."
Bitcoin vs Gold: Which is the Safe-Haven Asset?
Gold prices have surged recently, indicating that the market is seeking safe assets. However, Bitcoin and tech stocks have both retraced, showing that they are still viewed as risk assets. Nevertheless, the long-term trend of Bitcoin prices remains strong, with expectations that it will lead the way again when risk appetite recovers.
Emerging from a rolling recession through productivity recovery?
This lengthy economic and market observation, spanning dozens of pages, summarizes the seemingly healthy but actually rolling recession landscape of the past three years. It points out that artificial intelligence and new technologies may trigger a new wave of productivity revolution and deflationary environment, paving the way for truly innovative companies and investors. In the coming months, it will depend on how the economy and markets respond to this structural turning point.
This article Ark Invest | From "Rolling Recession" to AI Productivity Recovery: Is the U.S. Economy Brewing a Structural Reversal? First appeared on Chain News ABMedia.
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Ark Investment | From "Rolling Recession" to AI Productivity Recovery: Is the U.S. Economy Brewing a Structural Reversal?
Every "Employment Report Friday," the market holds its breath for clues about the economic trend. Recently, the U.S. economy seems to be on an unusual track; although overall data has not shown a complete recession, several industries have already entered a winter phase. Ark Invest founder Cathie Wood provides a deep analysis of the content in her investment letter, revealing the economy's "rolling recession," corporate labor hoarding behaviors, the dual-edged role of AI and automation, and why the current gloomy sentiment may be a prelude to the revival of an innovative economy.
Labor force hoarding phenomenon: Companies are still holding on, but pressure is brewing.
Despite the robust appearance of the employment report, this analysis points out that the reason companies have not engaged in large-scale layoffs is not due to a strong economy, but rather a "post-COVID labor panic" that makes companies reluctant to easily let go of employees. Unless corporate profit margins begin to decline significantly, a wave of layoffs is unlikely to occur for the time being. However, if the anticipated trend of deflation materializes, marginal pressures will force companies to accelerate the replacement of labor with capital (such as automation).
Automation and AI: Creating Jobs? Or Replacing Jobs?
Despite the massive "job loss panic" triggered by automation and AI technologies, the letter emphasizes that history shows technology is ultimately a net creator of jobs. The example of agricultural automation is the best proof that in the future, AI and robots will enhance overall productivity, benefiting the economy and the labor market in the long run.
The Truth About Rolling Recession: Industries Fall Behind One After Another
This "invisible recession" has actually been going on for years. From the housing market, automobile manufacturing, manufacturing industry to capital equipment spending, all have stagnated or even contracted. High-end consumer spending and government expenditure were originally the last two pillars supporting the economy, but they are now also beginning to waver.
Real estate market: Affected by high interest rates, home sales have plummeted by about 39% from their peak, and homeowners with ultra-low interest rate mortgages are unable to upgrade.
Automobiles: Under the double pressure of the pandemic and tariff policies, sales briefly rebounded before declining again.
Manufacturing and capital expenditures: Continuing sluggishness, marking the weakest performance since expansion began.
Small businesses and low-income individuals: confidence is lower than during the pandemic
The small business optimism index has fallen below levels seen during the COVID period, nearing the lows of the 2008 financial crisis. Consumer confidence has also generally declined, especially among low-income groups who are deeply entrenched in pessimistic sentiments, even anticipating a heightened risk of unemployment in the future.
Interest Rates and Monetary Policy: The Aftermath of the Most Aggressive Rate-Hiking Cycle in History
The Federal Reserve raised interest rates 22 times in 16 months, marking a historical first. Despite the starting interest rate being extremely low (0.25%), such a significant jump still had a huge impact on businesses and consumers, indirectly contributing to what is known as a rolling recession. With the peak of interest rate pressure having passed, the market expects up to four rate cuts this year.
Yield curve inversion: a classic sign of recession reappears
Historical data shows that almost every time the yield curve inverts, it is followed by an economic recession. This time, the inversion lasted longer, and now that the curve has begun to normalize, it may instead be one of the signals that a recession is already occurring.
Is deflation about to arrive? Market signals are pointing towards a price decline.
Whether it is the leading indicator of consumer prices "True Inflation CPI" or the velocity of currency circulation, both indicate that economic pressure is accumulating. In particular, China's economic weakness and export deflation may pull the global economy into a deflationary environment. This will limit the space for the Federal Reserve to tighten again, instead providing opportunities for growth assets.
Three major headwinds lifted? The value of innovative stocks emerges.
This letter believes that the three major headwinds hindering innovative investment strategies: high interest rates, market concentration, and high valuations, are gradually dissipating.
Interest rates: Entering a rate cut cycle, favorable for growth stocks.
Market concentration: The bull market, which was previously dominated by the "six major tech stocks", will expand to include more "true innovators" in the future.
Valuation pressure eases: The price-to-earnings ratio of innovative stocks has significantly retreated, approaching historical lows, indicating that "innovative stocks are on sale."
Bitcoin vs Gold: Which is the Safe-Haven Asset?
Gold prices have surged recently, indicating that the market is seeking safe assets. However, Bitcoin and tech stocks have both retraced, showing that they are still viewed as risk assets. Nevertheless, the long-term trend of Bitcoin prices remains strong, with expectations that it will lead the way again when risk appetite recovers.
Emerging from a rolling recession through productivity recovery?
This lengthy economic and market observation, spanning dozens of pages, summarizes the seemingly healthy but actually rolling recession landscape of the past three years. It points out that artificial intelligence and new technologies may trigger a new wave of productivity revolution and deflationary environment, paving the way for truly innovative companies and investors. In the coming months, it will depend on how the economy and markets respond to this structural turning point.
This article Ark Invest | From "Rolling Recession" to AI Productivity Recovery: Is the U.S. Economy Brewing a Structural Reversal? First appeared on Chain News ABMedia.