Following the stock market bottom in March 2020, growth stocks dominated the list of best-performing stocks for the first year of the new bull market. Since then, growth stocks have been mired in a brutal bear market. There is no better example of this than Cathie Wood’s Ark Innovation ETF (ARKK), which had a 391% gain from March 2020 to its high in February 2021. Since then, ARKK has given back most of these gains and is down 60% from these lofty levels.
The major factor behind this sharp decline is increasing inflationary pressures, resulting in expectations that the Fed will hike 7 times this year. Rising inflation and interest rates are bearish for growth stocks because it makes their future cash flows less valuable. However, we also know that such severe selling and oversold markets also create an opportunity to buy high-quality stocks at a discount.
