Most important take away

ARK Invest has partnered with Kalshi to create prediction markets around innovative technologies and macroeconomic events, which Cathie Wood believes could spark a resurgence in active equity management. Despite short-term headwinds from the Middle East conflict pushing oil prices and producer costs higher, underlying consumer inflation (core TrueFlation at 1.1%) remains remarkably low, and ARK expects productivity growth to accelerate into the 3-5% range driven by AI and other converging technologies, which would be strongly positive for equities.

Summary

ARK-Kalshi Partnership and Prediction Markets:

• ARK partnered with Kalshi to create prediction markets around technologies, companies, and macro data ARK covers. ARK is not trading these markets but using them as data insights to surface “wisdom of the crowd.”
• ARK projects the prediction market could grow to $5 trillion in notional volume over the next few years (up from Kalshi’s ~$120-130B annualized run rate), still only ~70 bps of the $715 trillion derivatives market.
• Actionable insight: Prediction markets offer direct exposure to discrete catalysts that move stocks, functioning as an “inverse of derivatives.” This represents a new risk management and information tool for investors.

Fiscal Deficit and Dollar:

• Kalshi markets show declining odds that the US deficit-to-GDP ratio drops below 5% in fiscal 2026, largely due to rising defense spending from the Middle East war. Currently at ~5.12%.
• Accelerated depreciation from the 2025 tax package is reducing corporate tax receipts by ~$150B, which is stimulative for GDP growth.
• Dollar (DXY): Kalshi participants predict DXY ending 2026 at ~103.6, up from the current ~99 level, going against bearish consensus. ARK agrees the dollar will strengthen due to capital-friendly tax and deregulation policies attracting foreign direct investment. Wood draws parallels to the Reaganomics-era dollar surge.
• Actionable insight: Consider positioning for a stronger dollar, contrary to the prevailing “US exceptionalism is dead” narrative.

Inflation - The Core Thesis:

• Money supply growth is at ~5%, suggesting ~5% nominal GDP growth. With productivity accelerating, this leaves little room for inflation.
• Unit labor costs at 2.3-2.4% YoY — well-behaved compared to post-COVID spikes.
• PPI vs. CPI divergence is critical: PPI at 3.4% YoY vs. CPI at 2.4%. Kalshi markets show high probability that PPI will exceed CPI for 3+ consecutive months in 2026 (already 2 months in). This means consumer goods companies are absorbing cost increases and facing margin compression.
• TrueFlation core CPI is at just 1.1% — levels not seen since the COVID downturn, suggesting significant underlying deflationary pressure.
• Actionable insight: Consumer goods companies face near-term margin pressure. Longer term, this will push companies to adopt AI and productivity tools to protect margins, benefiting tech/innovation stocks. Avoid consumer staples companies with weak pricing power in the near term.

Productivity — The Bullish Case:

• Kalshi shows 42% probability of non-farm productivity exceeding 3% YoY in any 2026 quarter. ARK thinks this is too low.
• Current productivity at ~2.5%, already in the upper half of historical range, achieved during a rolling recession (housing, manufacturing, small business, consumer sentiment all weak).
• Actionable insight: If Q1 2026 productivity is positive quarter-over-quarter (likely per ARK), the YoY rate will exceed 3% due to an easy comp (Q1 2025 was -0.9% QoQ). This is a potential catalyst for innovation-focused equities.

Manufacturing Boom and Supply Response:

• ISM Purchasing Managers Index shows a clear pickup in manufacturing, likely driven by the tax package.
• US flatbed truck demand index shows an outright boom, signaling increased industrial activity, foreign direct investment, and possibly tariff-related reshoring.
• Actionable insight: Manufacturing and industrial-related investments may benefit from this expansion. The supply response to higher prices is positive for longer-term disinflation.

Consumer Weakness:

• University of Michigan sentiment is terrible across all income levels, with low-income consumers hitting recent lows.
• Savings rate dropped to 4%. Auto loan delinquencies at all-time highs for subprime.
• Existing home sales remain weak; new home inventory is being cleared via price cuts.
• Entry-level unemployment (previously revised to 11%) is declining to 8.5%, possibly because companies need younger workers who are AI-native to drive productivity.
• Actionable insight: Consumer-facing sectors remain under pressure. Political risk for midterm elections if affordability doesn’t improve.

Stocks and Investments Mentioned:

• ARK Invest (ARKK and related ETFs): Cathie Wood’s firm, which benefits from active management resurgence.
• Kalshi: Prediction market platform; ARK projects massive growth in the space.
• Gold: Peaked Jan 28 at nearly $5,600, now ~$4,400. Bitcoin starting to outperform gold again.
• Bitcoin: Outperforming gold since late January; potentially benefiting from hawkish Fed expectations under Warsh.
• S&P 500: S&P-to-gold ratio tipping down (bearish signal historically), but S&P-to-oil ratio still in an uptrend.
• Junk bonds/High yield: Spreads near all-time lows, suggesting no systemic credit concerns.
• Bank credit default swaps: Not backing up, suggesting private credit is not becoming a systemic issue.

Key Macro Themes to Watch:

• Middle East conflict duration is the primary swing factor for commodity inflation, PPI, and sentiment.
• ARK’s deflationary thesis: AI, robotics, energy storage, blockchain, and multiomics are structurally deflationary, similar to innovation waves in the early 1900s.
• The yield curve’s persistent failure to steepen to 200-300 bps may be confirming this long-term deflationary tech thesis.
• Actionable insight: Position for a post-conflict disinflationary environment. Innovation/technology platforms (the 15 converging technologies ARK tracks) are expected to drive productivity and profitability gains. Active management in genomics/multiomics is particularly highlighted as inefficiently valued.

Chapter Summaries

ARK-Kalshi Partnership Introduction: Nick Rus explains the new collaboration to create prediction markets around ARK’s research areas. ARK uses these as data tools, not trading vehicles. Wood sees this as a catalyst for active equity management’s return.

Fiscal Policy and Deficit: Kalshi odds of deficit-to-GDP below 5% have declined due to the Middle East war increasing defense spending. Accelerated depreciation is reducing tax receipts but boosting GDP. The trade deficit will likely persist as the US economy booms relative to others, but the capital surplus offsets concerns. Debt-to-equity ratios suggest US fiscal position is better than debt-to-GDP implies.

Dollar Outlook: Kalshi participants predict a rising dollar (DXY ~103.6 by year-end), contrarian to consensus. ARK agrees, drawing Reaganomics parallels, citing deregulation and tax-friendly capital flows.

Monetary Policy and Yield Curve: Money growth at 5%, velocity in long secular decline but potentially flattening as manufacturing returns to the US. The yield curve just crossed into positive territory (2Y minus 3M), suggesting neutral Fed policy. The 10Y-2Y spread’s persistent failure to steepen may signal technology-driven deflationary undercurrents.

Productivity and Inflation: Productivity at 2.5% during a rolling recession, with ARK expecting acceleration above 3%. Unit labor costs well-behaved at 2.4%. PPI-CPI divergence shows companies absorbing costs. TrueFlation core at 1.1% confirms underlying disinflation.

Manufacturing and Services: ISM data and flatbed truck demand signal a manufacturing boom driven by tax policy, FDI, and reshoring. Services orders rising but prices elevated due to Middle East conflict.

Consumer Stress: Sentiment at lows, savings rate dropping to 4%, subprime auto delinquencies at records, housing weak. Entry-level jobs improving as companies hire younger AI-savvy workers.

Market Indicators: S&P-to-gold tipping down (cautionary), S&P-to-oil uptrend intact, Bitcoin outperforming gold, metals-to-gold still declining (possible China weakness). Credit markets (CDS, high yield spreads) show no systemic stress, supporting ARK’s bullish case for equities once the Middle East conflict resolves.