“The reduction in liquidity from the Fed will cause both the equity risk premium and interest rates to rise, which will continue to disproportionately impact the riskiest assets in the market including momentum-driven investments in money-losing technology stocks, meme stocks, and particularly cryptocurrencies, which have no intrinsic value,” according to Jay Hatfield, portfolio manager at Infrastructure Capital Advisors.
Ark Investment Management’s flagship Innovation ETF has fallen roughly 46 per cent from its record high in February 2021. The hawkish signal from the Fed has hit expensively valued technology names hard, and many of those, including Tesla and Roku, dominate Ark’s funds. Speculation is also being drained from other riskier corners of the equity markets. A Goldman Sachs basket of unprofitable tech stocks has tumbled after a years-long run-up while an index tracking SPACs is down 35 per cent from its highs.
“A potentially rising interest-rate environment is causing investors to re-assess the risk they are willing to take,” said Todd Rosenbluth, head of ETF research at CFRA. “Higher growth potential, yet less stable businesses are moving out of favour while investors prioritise more stable ones.”Bloomberg
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