Top fund manager of 2020 warns more than half the S&P 500 is at risk from technological upheaval

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As 2020 comes to a close, it’s hard to find a more successful fund manager than Cathie Wood, the chief executive and chief investment officer of ARK Invest.

ARK’s flagship fund, the ARK Innovation ETF ARKK, +2.24%, has jumped 154% this year, trouncing the 43% rise for the Nasdaq Composite COMP, +0.15%, and other ARK funds including the ARK Genomic Revolution ETF ARKG, +2.03% also have had meteoric gains. The only real sour note came this week, with both losses in the funds and, uniquely, outflows. But according to FactSet Research, the innovation fund has drawn in $9.4 billion in flows this year, the genomic fund has gobbled up $5 billion in assets, and its next-generation internet fund ARKW, +1.74% has attracted close to $3 billion in flows.

In a note to clients this week, Wood said there are five “innovation platforms” companies need to invest in, or lose their way: DNA sequencing, robotics, energy storage, artificial intelligence, and blockchain technology. These platforms involve 14 technologies including gene therapies, 3-D printing, cloud computing, big data analytics, and cryptocurrencies, she said.

This technological innovation puts at risk whole swaths of industries — energy, industrials, consumer discretionary, communications services, health care, and financial services, which compose more than half the S&P 500 SPX, +0.13%, she said.

Traditional equity and fixed income benchmarks are being populated increasingly by so-called value traps, stocks and bonds that are “cheap” for a reason, she added.

There is an economic forecast attached to this upheaval. “If our forecasts for the five innovation platforms are near the mark, nominal GDP growth in the U.S. is likely to slow from 4.1% at an annual rate during the past five years to 2-3%, regaining momentum only after new technologies and solutions gain enough critical mass to move the economic needle,” she said. Both volume growth and inflation will come in on the low side of expectations.

The buzz

Senate Majority Leader Mitch McConnell said he would not bring up a vote on $2,000 stimulus checks unless attached to provisions that would strip legal protections for companies including Google owner Alphabet GOOG, -1.09% and social media platform Facebook FB, -1.77%, as well as establish a commission to look at President Donald Trump’s unsubstantiated claims of electoral fraud.

Betting markets continue to favor Republicans, while the latest polls in Georgia are trending in the direction of the Democrats taking both the Senate runoff seats, which would give the party the control of both chambers of Congress as well as the presidency.

Attention on the coronavirus front continues to be on the slow rollout of vaccines in the U.S. as much as the heightening toll the virus is taking. Daily hospitalizations reached 125,220 as deaths totaled 3,903, according to the COVID-19 tracking project, while the Centers for Disease Control and Prevention reported 2.8 million have started the vaccination process. China approved its first vaccine, from state-owned conglomerate Sinopharm 1099, +3.40%, which says it is 79% effective, while the U.S. might not approve the vaccine from pharmaceutical company AstraZeneca AZN, +0.56% until April, according to a top Trump administration health official. 

Oil producer Exxon Mobil XOM, +0.80% said in a Securities and Exchange Commission filing that it plans to take a write-down of as much as $20 billion in the fourth quarter.

Hedge fund Alden Global has made a non-binding offer to buy the shares it doesn’t already own in Tribune Publishing TPCO, +0.31% for $14.25 per share. Tribune closed Wednesday at $12.79.

Enphase Energy ENPH, +1.60% is going to replace Tiffany, which is being acquired, in the S&P 500 index, S&P Dow Jones Indices announced.

The U.S. said it would subject the European Union to additional tariffs, on aircraft manufacturing parts from France and Germany, nonsparkling wine from France and Germany, and cognac, in what it said was a response to the EU’s calculation of how it imposed U.S. tariffs. The broader, long-running dispute is over state aid to plane makers Boeing BA, +0.19% and Airbus AIR, -0.35%.

Weekly jobless claims are the last economic indicator due for release in 2020.

The chart

Ronnie Walker, an economist at Goldman Sachs, finds that the labor market hasn’t changed much — either for the better, or the worse — since the November employment report. The good news is there hasn’t been much scarring effect from the COVID-19 pandemic. Two-thirds of the 25 million jobs initially lost since the onset of the pandemic have returned, and 42% of the newly unemployed since February say they are on temporary layoff, he said.

The market

It’s looking like a quiet finish to a big year, with little movement in stock futures ES00, +0.06%, bonds TMUBMUSD10Y, 0.928% or the dollar DXY, -0.06%. Bitcoin BTCUSD, +0.15% was where the action was, with the cryptocurrency topping $29,000.

Random reads

Becky Hammon became the first woman to direct a team in National Basketball Association history, taking over the San Antonio Spurs on Wednesday night following Gregg Popovich’s ejection in the first half.

The father of U.K. Prime Minister Boris Johnson said he is applying for French citizenship.

U.S. rivers are changing colors, satellite images show.

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