Over the past few weeks, there's been a lot of fear surrounding the rising interest rates because of this fear, many investors have been selling growth stocks to purchase value stocks. This has led to a rotation in the market. Previously growth stocks were increasing, while valley stocks were decreasing. That movement happened because during the pandemic, technology-related stocks thrived now we're seeing the opposite of that as value stocks are increasing, while growth stocks are decreasing this time the movement is happening because the opposite is occurring.

The vaccine is rolling out, and investors expect that the reopening of the economy will favor value-oriented companies such as brick and mortar companies like macy's. In addition to this, there is also an inflationary component that is driving this movement kathy wood, the ceo and cio of arkhanvest. Recently warned that some serious consequences are coming not just from the constant printing of money, but also from the rise in value stocks. In this video, i will cover how the world order is changing and where cathy wood thinks the market is headed in the future.

Welcome to cass games academy if you're new to the channel, please consider subscribing for more content like this and let's get right into it. As i covered earlier, many investors are moving into valley stocks right now, as gold stocks have lost their momentum for the time being. Those that are making the shift must be careful about what they are doing. Investing in businesses that are going to be disrupted is never a smart move over the long term as we'll soon cover a major shift is happening right now, and this is about to accelerate faster and faster there's a big rope rotation taking place.

It's moving from growth into value now this started in the fourth quarter, and the surprise to us is that our strategy had held up as well as it did uh until the last two weeks, uh and uh. We were beginning to think: oh, maybe maybe they can coexist um. Well, we don't think they can coexist. But what i'm about to say might surprise you um, if you're, the the algorithms out there and and the market is highly algo driven these days.

We learned that from the coronavirus when algos just ripped through the market - and you know, sold stocks that had small cash cushions and were in a cash burn situation and uh. Many of those stocks uh are held solutions to the problems. So you know they were cut by two-thirds at that time. It made no sense made no sense, but these algorithms, if they're, if they're, given just two uh two variables, uh they're, probably going to make a lot of mistakes.

If the variables they're using today are price to book and dividend yields, then then we think that they're going to be very wrong because those kinds of value stocks, uh, probably haven't been investing a very, very aggressively to become a part of the new world and the Innovation, that's burgeoning today. There are value managers out there. Very good ones who understand their biggest risks are value traps caused by innovation, so they're picking their spots, uh very well. What kathy would said there might not surprise you value stocks like ford, macy's and gm are bound to fall.

If you do not invest in new technologies, we are literally on the verge of exponential growth. There were many innovations made in the past, such as electricity, the telephone, computers and tvs. All of these innovations have one thing in common, which is the s-curve s-curves happen with almost every new innovation, and we are in the midst of one right now. As you can see in this graph, every s-curve has a sudden period of exponential growth.

This exponential growth period usually takes off when the product reaches a market share of between 10 to 20 percent. Today, we are in the 20 range, which shows that the exponential curve is about to take off value. We believe is going to continue to face massive headwinds, especially those companies uh that have not invested uh to move into the new world. Uh and even retail many people say well can't possibly hurt retail any more than than it already has um.

I i can tell you, that's not true, so if you look in the united states online retail, as a share of total retail uh is, is roughly 20 now it um it. It grew at four times the pace uh this year or la in the last year. As it did the prior four years so four years into one um, so it's close to 20. If you look at s-curves, where does the sweet spot occur? It starts happening in the 10 percent market share 15, 20 and then there's the takeoff and given the now we're all much more comfortable shopping online, there were some who just wouldn't do it before they.

They had too much of a habit going or something uh. That's changed, and so i think anyone who thinks we're going back uh back in time is mistaken. The point that kathy makes here is extremely important. We will stop being so reliant on in-person shopping after the pandemic, yet there's nothing that compares to the biggest value trap of them all, which is energy course, retail financial services, energy, energy, this uh increase in energy.

That's almost what makes me feel good about. What's going on, if you look uh year to date, energy stocks are up 37 and a half percent and financials up 13. much of that occurred in the last month. Uh 22 increase in energy just in the last month and 8 in financials, so that accelerated appreciation is what has caused this uh rotation algorithm.

Saying: okay. Past is prologue, it's happening faster, let's get rid of our growth stocks and let's go into value. I do believe, on the other hand, that energy and financial services are going to be two of the most disrupted sectors, thanks to electric vehicles, autonomous electric vehicles and thanks to digital, wallets um. Those are two and three of the biggest opportunities brewing out there.

So the fact that energy and financials are leading uh - the pack um suggest to me that this is not going to be uh long-lived kathy, which just gave a major warning to any investors invested in value traps. You don't have to be a genius to realize that battery costs are declining every year and the use of digital wallets is accelerating right now. Another troubling concern is regarding stimulus, checks and the consequences that come from them by that i'm talking about higher taxes. Over the past year, the government has given out plenty of stimulus checks with the most recent deal being worth 1.9 trillion dollars.

All of these stimulus checks will lead to higher taxes. Whether or not you support the biden administration. We all know that high taxes are coming, especially given that the democrats control both the white house and congress government spending is is nothing more than future taxation in one shape in one shape or form, whether it's inflation, which is a regressive tax, whether it's outright taxation, Which this administration um seems to be veering towards this is not good. Capital gains taxes, corporate taxes, tax rates going up um.

I think it shouldn't surprise the market uh, the the fiscal policy. The fiscal stimulus has been in place for more than a year now or for about a year now and and with that is going to come taxation. Well, now rubber is going to meet the road we'll find out what kind and um. But i will say the closer we get to next year.

The lower the odds of some very harmful taxes, because we'll be looking into a congressional election year and the house is very close in terms of the number of democrats and uh the number of republicans uh. Nonetheless, i can't i ca. I can tell you uh: that's not good news, we don't have our rose-colored glasses on there. In fact, we never have rose-colored glasses.

On with higher taxes. We could be facing a further correction in the short to mid term, yet it will be some time before we get there. What's even more recent is the issue of rising bond interest rates after the recent rise in interest rates. Many are arguing that innovation related strategies.

Don't work anymore because growth companies now have to borrow money at higher interest rates. Previously, interest rates on the 10-year treasury bond were at 0.5 percent. Now these rates have increased to 1.5 percent. Despite this, kathy wood argues that, even with an interest rate of 1.5 percent growth companies are still set to thrive.

In fact, she even argued that the stock market never even priced a 0.5 interest rate in the first place. In order to understand this important concept, we need to go over how the earnings and bond yields work. The overall earnings yield is calculated by taking the earnings per share and dividing it by the price per share. In other words, the earnings yield is a percent of earnings.

A company earns every year for every invested dollar. On the other hand, the bond yield is the level of interest investors get per year. So if someone invested 100 on a 10-year treasury bond with the 1.5 percent yield, they would get 1.50 cents every year. The earnings yield works in the same way, but instead of interest, it is the number of earnings a company gets for each invested dollar.

So if someone invested 100 in a stock that had an earnings deal to five percent, then that company would be earning five dollars every year for the investor or five percent of each dollar invested. This is going to be extremely important as i'll soon explain. In the example, i showed the stock investor obtained much more earnings than the bond investor. The stock investor got 5 worth of earnings per year, while the bond investor got 1.5 interest per year.

One way to calculate the earnings yield is to take 1 and divide it by the pde ratio. Today, the s p: 500 4 pd ratio hovers at 20 to 25, which gives it a future earnings yield of four to five percent. On the other hand, the bond yields are currently at one point: five percent, which is significantly lower than the s p 500's forward. Earnings yield kathy, argues that the current earnings yield to four to five percent implies that bonyos must be at four to five percent.

In order for bonds to be equally attractive than stocks, because of this stocks are currently priced at a four to five percent bond interest rate. These types of calculations are more commonly used in the fed model and the beer ratio, which is the bond equity stock, healed ratio. Now one of the things that a lot of investors say well, interest rates have gone up. Of course, this is a killer for your strategy.

I don't think the markets ever priced in uh interest rates at 0.5 on the 10-year treasury or today, 1.5. I think that the market uh and we i went through this in a previous uh uh video. The market has been assuming that interest rates would normalize somewhere in the four four percent, uh or or even five percent range uh, and that's how taking the inverse of that uh uh. We we got to sort of a normalized pe in the 20 to 25 range.

Couldn't get through there one over four percent uh is 25 one over five percent is 20. uh. So we don't think the market has uh priced any of these low interest rates in and so to say that these strategies should uh go down um because of interest rates. Uh we just don't buy according to the fed model.

The stock market is already pricing in a four to five percent bond yield, which shows that bond interest rates are still extremely low for the time being. In other words, stocks are easily still a buy at the moment, even at the current valuations. By the way my patreon is now open over there, i show you my personal stock portfolio with explanations, in addition to exclusive stock reports, exclusive videos, valuation spreadsheets and more, if you're interested in joining or, if you're, just curious check out my patreon in the description below. Let me know whether you have been buying stocks in the comment section below.

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