Cathie Wood’s contrarian calls: Falling inflation, stronger growth, and Bitcoin over gold

Sticky inflation. Higher-for-longer rates. Weakening employment. Unsustainable deficits.

Those remain the dominant narratives driving global markets.

But Cathie Wood thinks investors are missing something much bigger.

In a macro update to clients, the ARK Invest founder laid out one of the market’s most contrarian outlooks: inflation falling below 2%, productivity surging, employment improving, deficits narrowing and technological deflation driving stronger-than-expected growth.

Inflation could fall below 2%

Perhaps Wood’s boldest call is her belief that inflation is heading materially lower despite widespread fears that rapid price rises are becoming structurally embedded in the economy. 

The latest readings showed US headline inflation accelerated to 3.8% in April, while the core consumer price index (CPI) remained stuck at 2.8% - still well above the Federal Reserve’s 2% target.

“We certainly think inflation is going to surprise on the low side of expectations,” Wood said.

At the centre of her thesis is collapsing AI costs and rising productivity.

“AI training costs are dropping 75% per year,” she said, while inference costs are falling between “85% to 95%-plus per year.”

She believes markets are underestimating how quickly these technologies are flowing through the economy.

“Every company’s an AI company. They use these technology tools to increase productivity.”

She also reckons that strong wage growth in the U.S. will be offset by high productivity.

“If productivity is roughly 3% now, we can have 5% compensation increases… and still get 2% unit labour costs,” Wood said.

Wood also pointed to several economic signals she believes markets are ignoring. One of the most interesting was the relationship between producer price inflation (PPI) and consumer price inflation (CPI). Core PPI is now running above core CPI, something that typically occurs during recessions, when consumers simply refuse to absorb higher prices.

“This is a vestige of the rolling recession we believe we’re exiting now ... it corroborates that we’ve been in a painful environment where consumers are not willing to pay [higher prices].”

In practical terms, that means many consumer goods and services companies are being forced to absorb rising input costs themselves rather than passing them through to households.

Wood also highlighted the US 5-year breakeven inflation rate - one of the Federal Reserve’s most closely watched inflation gauges - which is sitting around 2.3% despite ongoing oil price and inflation fears.

“We think we will get below 2%,” Wood said.

To support that view, Wood pointed to Truflation - a real-time inflation tracker measuring thousands of goods and services continuously across the economy.

“Even with food and energy in the mix, we’re already at 2%,” she said. “And on the core measure we’re at 1%.”

Markets are wrong about deficits and the US dollar's demise

Wood also pushed back against another dominant market narrative: that America’s deficits and debt levels will inevitably weaken the US dollar and undermine long-term growth.

Instead, she believes the US economy may “grow its way” into better fiscal health.

At the time of the presentation, the US deficit-to-GDP ratio sat around -5.2%. Wood expects the deficit to improve into the -4% range during fiscal 2026, arguing the trend is already moving in the right direction based on the chart below.

She also highlighted Treasury Secretary Scott Bessent’s goal of reducing the deficit-to-GDP ratio to 3% by 2028, arguing that America’s economic leadership is far more focused on repairing the fiscal position than markets currently believe.

Another key point is that manufacturing incentives and accelerated depreciation policies - part of Trump's industrial reshoring push - will significantly improve returns on invested capital for US corporations.

“We believe the return on invested capital in the US will increase relative to that in other countries around the world,” she said.

“Instead of depreciating over 30 or 40 years, it could depreciate in one year."

That, in turn, could drive stronger capital investment, higher productivity and potentially a stronger US dollar.

“The narrative out there has been stuck on deficits and debt ... We think the next big move [for the US dollar] is going to be to the upside.”

Bitcoin over gold - and buying beaten-down innovation

Wood also rejected the increasingly popular view that the global economy is heading back into a 1970s-style stagflation regime - an environment historically associated with persistently high inflation, weak growth and strong gold prices.

Part of her reasoning comes from bond markets themselves.

Wood pointed to charts comparing industrial metals, commodity prices and the US yield curve. Historically, rising oil and commodity prices tend to steepen the yield curve as investors price in stronger inflation pressures. But despite oil prices rising roughly 57% year-on-year on a three-month moving average basis, the yield curve has instead continued flattening.

To Wood, that signals bond markets are increasingly focused on the deflationary impact of productivity, AI and technological disruption rather than short-term commodity shocks.

“What could this mean?” Wood asks. 

“I think the long-term Treasury yield is beginning to hone in on deflationary undercurrents.”

That view also underpins her bullish stance on Bitcoin relative to gold.

“Bitcoin is moving up relative to gold,” she said. “We would not be surprised to see gold continue to fall… and Bitcoin continue to increase.”

“Picking babies out of the bathwater”

Importantly, Wood says ARK is already positioning aggressively around this thesis.

While much of the market has rotated toward defensives, gold and cash, ARK has been buying beaten-down innovation stocks that investors have aggressively sold down.

“Anything touching software, even fintech and the payments ecosystems… they have been hurt and we think there’s a lot of confusion - sell now and ask questions later,” Wood said.

“We’ve been picking some of the babies out of the bathwater.”

She also highlighted second-order AI beneficiaries including Intel (NASDAQ: INTC), Cisco (NASDAQ: CSCO), Corning (NYSE: GLW) and Flex (NASDAQ: FLEX).