This week marks the one-year anniversary of Cathie Wood's ARK Innovation ETF (NYSE:ARKK) hitting its all-time high of $159.70 in February 2021. Since that peak, the ARKK fund's performance has been abysmal as investors have rotated out of unprofitable, high-growth tech stocks.
With ARKK shares now down more than 53% from their highs, DataTrek Research co-founder Jessica Rabe said this week there are some striking similarities between the price action of the ARKK fund in the last year and the price action in the Nasdaq following its dot-com bubble peak in March 2000.
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The Numbers: Rabe compared the performance of the ARKK fund and the Nasdaq on trading day 253 following their respective peaks in 2021 and 2000 and found the Nasdaq performed slightly worse, losing 60% from its peak compared to just a 54% drop for ARKK.
Looking ahead, Rabe said the next three weeks could be difficult for ARKK if it continues following the Nasdaq's 2001 trajectory. From trading day 253 to trading day 269 following its bubble peak, the Nasdaq dropped another 18.7%.
What's Next? For investors who believe tech stock valuations will continue to deflate in 2022, Rabe cautioned potential short sellers that the Nasdaq rallied about 41% during a roughly six-week stretch during its 2001 bear market. Yet it once again rolled over following that rally and dropped about 38% over a four-month stretch.
"Speculative tech names have been under intense pressure for an entire year and that’s likely to continue over the coming weeks," Rabe said.
"ARKK’s latest one-year performance from its peak has generally followed the same downward path as the NASDAQ in the early 2000s, the best analog to overvalued tech stocks deflating."
Benzinga's Take: The bursting of the dot-com bubble was driven by both fundamental re-ratings of overpriced growth names and macroeconomic events, particularly the terrorist attacks on Sept. 11, 2001.
Today, growth stocks are re-rating thanks in large part to the expectation that the Federal Reserve will begin raising interest rates aggressively starting in March, and a potential geopolitical shock from China or a Russian invasion of Ukraine could accelerate the sell-off in ARKK and other tech-heavy funds.
