(Bloomberg Opinion) — Market commentators are shaking their heads. Wall Street heavyweights are dubious. Federal Reserve officials are warning about dim prospects for a robust recovery of the devastated pandemic economy. Yet even as the U.S. economy falters and Americans suffer more from Covid-19 than citizens of other developed countries, U.S. stocks are outpacing the rest of the world’s equities by a wider margin than at any time in at least 50 years.Illogical? Appearances would seem to say so. Loretta Mester, president of the Federal Reserve Bank of Cleveland, said this month that the recovery from the second quarter's record 32% decline in gross domestic product remains “fragile.” Money management titan Stan Druckenmiller says that the risk-reward calculation for equities is the worst he has ever seen. My Bloomberg Opinion colleague Michael R. Strain, director of economic policy studies at the American Enterprise Institute, has warned that strengthening economic indicators are chimerical and wrote last week, “Improving wage and productivity statistics are actually a sign of underlying weakness.”But what if these omens of gloom obscure powerful economic undercurrents? What if the damage is a sign of Joseph Schumpeter's “gale of creative destruction,” the theory of change derived from Karl Marx that economies are invigorated by innovation as traditional sources of growth wither and die.That phenomenon could make sense of the 92% gain in the S&P 500 over the past five years, crushing the world benchmark's 64%, the widest gap since 1970 when such data was initially compiled. Since the end of March, when the coronavirus proved that prosperity depends on dealing online with customers, suppliers and just about everyone, the market's best performers are cloud-enhancing companies, returning as much as 176%, changing how business gets done and the way people work.The notion that disruptive innovation was creating enough wealth to change the economy's trajectory before the pandemic arrived and will continue to do so after it retreats is the foundation of the investment success of Cathie Wood, founder and chief executive of Ark Investment Management LLC. Among more than 600 mutual funds and exchange-traded funds investing a minimum of $1 billion in global equity, the top two during the past three years are Wood's $2.2 billion ARK Next Generation Internet ETF, returning 186% (income plus appreciation) and her $7.8 billion ARK Innovation ETF, returning 166%, according to data compiled by Bloomberg. The spread between ARK's Innovation ETF and the S&P 500 Index is the widest this month since the fund's inception in 2014.“A lot of people were very surprised to see our numbers at the end of March” after the S&P 500 plummeted 12% in the month before recovering over the summer, said Wood, during a remotely-engaged interview from her home office in Connecticut earlier this month. “They expected us to be down 20 points below and we weren't. The coronavirus created a lot of problems that innovation is solving because we had to move into the digital world so much faster. Crisis creates opportunity, innovation solves problems, and our outperformance began before the market bottomed.”Wood predicted a V-shaped recovery in which the economy will approach its pre-pandemic performance in the third quarter of 2020 as a result of pent-up savings and demand. She compares the stock market this year to its rebound in 1987 after portfolio insurance failed, and to the aftermath of the terrorist attacks of Sept. 11, 2001. Her firm's 2019 paper, “Disruptive Innovation: Why Now?” argues that artificial intelligence, DNA sequencing, robotics, energy storage and blockchain technology already are proving to be transformational. “According to our estimates, the five technology platforms should generate more than $50 trillion in business value and wealth creation over the next 10-15 years,” wrote the paper's author, Brett Winton. “Today, they account for less than $6 trillion in global equity market capitalization, giving investors an opportunity to capitalize by almost tenfold if they have positioned their portfolios on the right side of innovation.”Wood’s biggest holdings in the Innovation ETF are Tesla Inc, Invitae Corp, Square Inc, Crispr Therapeutic AG and Roku Inc. They appreciated this year by 401%, 117%, 131%, 39% and 18%, respectively, when the S&P 500 is up 6%, according to data compiled by Bloomberg. In contrast, she called oil “a value trap” that peaked in 2008 because “battery technology is moving down the cost curve and the total cost of ownership of an electric vehicle today is less than that of a gas-powered vehicle.” Tesla cars, for example, retain 90% of their value a year after their initial purchase, she noted, “whereas other cars are at 50% already, so consumers broadly are starting to drive this now. It makes economic sense.''When her holdings surged in March, Wood recalled: “That told me that innovation was going to help get us out of this problem. You and I could not have have worked like this 10 years ago. The technology wasn't there. We sequenced the coronavirus in two days, right? That was with Illumina machines in China. In 2003, it would have taken five months, given the technology at the time.”For Wood, “What's so fascinating about what we're doing right now is that the seeds for everything that's happening today were planted during the internet bubble” of 2000.“A lot of technologies that investors were dreaming about back then and seizing back then, way too prematurely, are in a very special moment,” she said. “There's so much disruptive innovation and creative destruction at the same time. It's the same thing, right?”This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Matthew Winkler, Editor-in-Chief Emeritus of Bloomberg News, writes about markets.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.