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Cathie Wood’s ARK Investment Faces Reckoning as Tech Trade Stalls

ARK Investment Management LLC’s winning bets on disruptive technology companies cemented

Cathie Wood’s

status as Wall Street’s hottest fund manager since Peter Lynch or Bill Gross.

Now, those gambits threaten to make ARK a high-profile casualty of the recent shift in investor sentiment away from tech stocks and toward cyclical shares tied to an economic upswing.

ARK runs five exchange-traded funds that actively invest in companies Ms. Wood and her team of portfolio managers believe will change the world through what they call “disruptive innovation.” Among the ETFs’ biggest holdings are electric car maker

Tesla Inc.,

payments company

Square Inc.

and streaming media firm

Roku Inc.

The stock prices of those three companies have surged at least 195% in the year since the Covid-19 pandemic upended the investing landscape—helping ARK’s funds more than double over the same period. But the stocks dropped more than 12% last week amid a broader selloff in fast-growing tech stocks, a slump many attribute to a sharp rise in government bond yields.

They have badly underperformed the tech-heavy Nasdaq Composite Index, which dropped 4.9% last week.

Worries about a rising interest-rate environment have posed a test for ARK, exposing the vulnerabilities of its investment approach. Higher yields generally make growth stocks, including shares of big tech companies, less attractive. Plus, some of ARK’s positions are in small, illiquid stocks that have the potential to swing dramatically.

The ETFs suffered double-digit percentage decreases last week, their biggest routs since the stock market’s plunge last March, according to FactSet. Further declines among growth stocks on Tuesday and Wednesday drove even deeper drops among ARK’s funds, bringing the declines for its flagship ARK Innovation ETF to 14% over the past month.

The cascade of red has proved hard for many investors to stomach. ARK’s funds collectively lost more than $1.8 billion between Feb. 24 and Monday, their biggest stretch of outflows ever, according to FactSet. Together, they managed roughly $51 billion at the end of February, making ARK the ninth-largest ETF operator. That’s after attracting $36.5 billion in assets over the past year, more than

Invesco Ltd.

,

Charles Schwab Corp.

and First Trust—the fourth, fifth and sixth biggest ETF issuers in the U.S., according to Morningstar Direct.

But the recent outflows triggered sales across ARK’s funds to meet redemptions, while the firm also opted to dump shares of its easier-to-trade holdings, including

Apple Inc.

and

Snap Inc.,

to load up on favorites like Tesla.

With tech stocks continuing to fall, ETF analysts and traders worry that a combination of broad market declines and additional outflows could create a snowball effect across ARK’s portfolio. That could potentially cause some of its more illiquid, small-cap holdings to trade sharply lower.

Tom Staudt, ARK’s chief operating officer, dismissed concerns of any liquidity problems and said ARK’s ETFs have continued to perform as any other ETF would during the tumult.

Still, it has been a rough patch for ARK and its star stock picker, Ms. Wood.

“What a crazy week or two we’ve had here,” Ms. Wood said in a YouTube video posted Friday that was viewed by nearly 600,000 people.

Ms. Wood founded ARK in 2014 and now serves as its chief executive and chief investment officer following a 12-year stint at AllianceBernstein. Her funds’ eye-catching performance, coupled with her willingness to engage investors through social media, podcasts and videos, has earned her a variety of endearing monikers from individual investors and Reddit’s day traders, including “Mamma Cathie,” “Aunt Cathie” and, in South Korea, “Money Tree.”

“ARK’s funds fit 2020’s narrative of secular growth, but we’re now seeing a shift in that,” said Steven DeSanctis, an equities analyst at Jefferies. “It probably won’t be the last time in the near term she sees outflows,” Mr. DeSanctis added, referring to Ms. Wood.

Outside of last week’s pullback, ARK’s returns have been the envy of the asset-management industry, reviving some investors’ belief in stock pickers after more than a decade of dominance by index-tracking funds. The ARK Innovation ETF has logged an average annual return of 36% since it started trading in 2014. That compares with the S&P 500’s average return of 11% over the past 10 years.

“There’s been lots of calls with clients over the last six months as the funds gained assets, and the primary conversation has been about what happens when the funds are no longer a hot topic,” said William Kartholl, director and head of ETF trading at Cowen.

Mr. Staudt said ARK has a soft limit of about 10% on any one stock within its funds. Tesla’s stock sits at that level in ARK’s innovation and autonomous funds, as does Square in ARK’s fintech innovation pool. As for ARK’s exposure to smaller stocks, Mr. Staudt said those worries are overblown and pointed to the fact that about 15% of ARK’s innovation fund is invested in stocks with market caps below $5 billion.

If anything, the volatility has created “attractive buying opportunities” for ARK, Mr. Staudt added.

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Do you think ARK’s funds will remain susceptible to further losses and outflows? Why or why not? Join the conversation below.

ARK loaded up on more shares of Tesla,

Teladoc Health Inc.

and Square during last week’s selloff, according to ARK’s daily trading logs. It also added more shares of

Zoom Video Communications Inc.

to one of its funds earlier this week.

Amid the redemptions across ARK’s funds, the firm also sold shares in some of its more widely traded liquid stocks. The firm cut its positions in Apple and Snap last week and sold all its remaining shares in

Salesforce.com Inc.,

he added. ARK also sold shares of

Facebook Inc.,

Bristol-Myers Squibb Co. and

Roche Holding AG

this week.

“It’s almost like having dry powder in the portfolio,” said Mr. Staudt, referring to how the funds basically build up a cash-like reserve to buy other stocks.

Not all investors are fazed by ARK’s bigfooted approach to investing. Flows into ARK’s innovation fund turned positive Tuesday, pulling in $464.3 million, according to FactSet.

But ARK’s most recent stumble continued to shake out others.

Paolo Campisi, a 31-year-old entrepreneur in Toronto, bought shares of ARK’s innovation fund in early February but sold his stake last week after shares dropped more than 10%. He decided to take a riskier bet on an eventual rebound by buying out-of-the money call options that expire at the end of the month. But he sold those options as well Wednesday when ARK’s flagship fund fell an additional 6.3%.

“I think everyone’s going to be challenged moving forward,” Mr. Campisi said, adding that he is unsure at what level he’d consider buying back into the fund again. “And the level of scrutiny on someone like Cathie [Wood] is going to be high.”

What You Need to Know About Investing

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Lakers vs. Warriors takeaways: LeBron James and Co. get back on track, snap four-game losing skid

On paper, Sunday night’s primetime matchup between old rivals LeBron James and Steph Curry looked fantastic. In reality it was a huge letdown. The Los Angeles Lakers led by 20 points after the first quarter and cruised to a rather boring 117-91 win over the Golden State Warriors. 

LeBron James finished with 19 points, six rebounds and four assists in just 24 minutes as he took most of the second half off. Markieff Morris, Dennis Schroder, Alex Caruso, Kyle Kuzma and Talen Horton-Tucker all chipped in with double figures in what was a true team effort. 

As for the Warriors, their leading scorer was Eric Paschall with 18 points, which is really all you need to know from their perspective. With Draymond Green knocked out of the game due to a sprained ankle, head coach Steve Kerr waived the white flag pretty early on. 

Here’s some key takeaways from the Lakers’ big win:

Lakers getting back on track

The past few weeks had not been kind to the Lakers. Anthony Davis suffered a calf injury that will keep him out until sometime after the All-Star break, and shortly after the skidded through a season-high four-game losing streak. But now things are starting to look up again.

This was just the kind of dominant performance they needed to rejuvenate the squad. They jumped out to a 20-point lead after the first quarter and were able to coast the rest of the way. After logging heavy minutes this month, LeBron James only had to play 24 in this one — a season low.

Winners of two in a row, the Lakers have climbed back into second place in the Western Conference. If they can string a few more victories together this week they could go into the break on a high note. 

Green goes down

Late in the first half, Draymond Green was hustling back on transition defense and made a nice play to force Kentavious Caldwell-Pope into a missed layup. Unfortunately, the two got tangled up a bit on the landing, and Green rolled his ankle when he stepped on Caldwell-Pope’s foot. 

At first he tried to walk it off and told the bench he didn’t want to come out of the game, but that soon became impossible. He went back to the locker room and didn’t emerge for the second half, at which point the team announced he would be out for the remainder of the game. 

It’s still too early to know how long he’ll be sidelined, but it wouldn’t be surprising to see the Warriors be cautious and just sit him through the All-Star break. That way he’ll get nearly two full weeks off and could hopefully come back recharged for the second half of the season. 

Schroder shows his influence

Much of the coverage over the last few weeks has focused on Anthony Davis’ absence, and for good reason. But he wasn’t the only key member of the Lakers on the sidelines. Dennis Schroder was also out due to a stint in the league’s health and safety protocols and missed four games — all losses for L.A.

He didn’t exactly put up crazy numbers against the Warriors — 12 points, three rebounds and six assists in 25 minutes — but he once again showed the impact he has on this team. It’s little surprise that the Lakers’ offense was more dynamic on Sunday considering for the season their offensive rating is plus-9.1 points per 100 possessions higher with Schroder on the court.

For all their talent, the Lakers don’t have many players who can create outside of James and Davis. And when Schroder was out as well, their offense really ground to a halt. His quickness allows him to get into the lane, where he can put pressure on the defense in ways many of his teammates cannot. From there, he’s able to score himself, get to the line or kick the ball out to open teammates. 

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Investors flee bonds and snap up commodities on economic recovery hopes, while European stocks trade lower

Investors continued to flee bonds and snap up commodities on hopes the rollout of vaccines will reinvigorate the global economy, sending European stocks lower on Monday.

The yield on the benchmark 10-year Treasury
TMUBMUSD10Y,
1.363%
rose to 1.37%, after rising 14.5 basis points last week. The yield on the 10-year U.K. gilt
TMBMKGB-10Y,
0.698%
and German bund
TMBMKDE-10Y,
-0.315%
also increased. Yields move in the opposite direction to prices.

U.K. Prime Minister Boris Johnson on Monday is set to unveil England’s reopening plan, that will start with schools and by the end of March extend to golf courses and tennis courts, according to published reports. The country’s furlough plan is set to be extended through the summer.

Globally, new coronavirus cases have dropped after peaking in January.

Copper
HG00,
+0.76%
and palladium
PA00,
+0.14%
led an advance in much of the metals complex on Monday.

“One of the (many) hot stories in financial markets right now is the surge in base metal prices, where the likes of copper, tin, nickel, lead and zinc are all rallying on the back of global recovery hopes and supply challenges. This comes at a time when investors are coming around to the view that the Fed really does want to let inflation run hot and that bonds are certainly not an asset class to hold in the current environment. The key challenge for financial markets is whether the bond sell-off can prove orderly enough to allow reflationary asset classes – including equities to prosper,” said strategists at ING.

After squeaking out a 0.2% rise last week, the Stoxx Europe 600
SXXP,
-0.90%
slumped 1.1%. U.S. stock futures
YM00,
-0.58%

ES00,
-0.74%

NQ00,
-1.18%
also were lower.

Miners including BHP Group
BHP,
+0.42%
and Rio Tinto
RIO,
-0.88%
advanced, and banks including HSBC Holdings
HSBA,
+0.05%
were helped by the steepening of the yield curve, which is suggestive of higher margins.

Tech-sector plays such as microchip equipment maker ASML Holding
ASML,
-2.29%
fell. Also lower were companies that have thrived during the pandemic, such as fast-food delivery company Delivery Hero
DHER,
-4.23%,
mealkit preparer HelloFresh
HFG,
-4.48%
and supermarket delivery firm Ocado
OCDO,
-4.57%.

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Frozen pipes, electric woes remain as cold snap eases grip

DALLAS (AP) — Higher temperatures spread across the southern United States on Saturday, bringing relief to a winter-weary region that faces a challenging clean-up and expensive repairs from days of extreme cold and widespread power outages.

In hard-hit Texas, where millions were warned to boil tap water before drinking it, the warm-up was expected to last for several days. The thaw produced burst pipes throughout the region, adding to the list of woes from severe conditions that were blamed for more than 70 deaths.

By Saturday afternoon, the sun had come out in Dallas and temperatures were nearing the 50s. People emerged to walk and jog in residential neighborhoods after days indoors. Many roads had dried out, and patches of snow were melting. Snowmen slumped.

Linda Nguyen woke up in a Dallas hotel room Saturday morning with an assurance she hadn’t had in nearly a week: She and her cat had somewhere to sleep with power and water.

Electricity had been restored to her apartment on Wednesday. But when Nguyen arrived home from work the next evening, she found a soaked carpet. A pipe had burst in her bedroom.

“It’s essentially unlivable,” said Nguyen, 27, who works in real estate. “Everything is completely ruined.”

Deaths attributed to the weather include a man at an Abilene health care facility where the lack of water pressure made medical treatment impossible. Officials also reported deaths from hypothermia, including homeless people and those inside buildings with no power or heat. Others died in car accidents on icy roads or from suspected carbon monoxide poisoning.

Roughly half the deaths reported so far occurred in Texas, with multiple fatalities also in Tennessee, Kentucky, Oregon and a few other Southern and Midwestern states.

A Tennessee farmer died trying to save two calves from a frozen pond.

President Joe Biden’s office said Saturday he has declared a major disaster in Texas, directing federal agencies to help in the recovery.

U.S. Rep. Alexandria Ocasio-Cortez, a New York Democrat, tweeted Saturday that she helped raise more than $3 million toward relief. She was soliciting help for a Houston food bank, one of 12 Texas organizations she said would benefit from the donations.

The storms left more than 300,000 still without power across the country on Saturday, many of them in Texas, Louisiana and Mississippi.

More than 50,000 Oregon electricity customers were among those without power, more than a week after an ice storm ravaged the electrical grid. Portland General Electric had hoped to have service back to all but 15,000 customers by Friday night. But the utility discovered additional damage in previously inaccessible areas.

Oregon Gov. Kate Brown ordered the National Guard to go door-to-door in some areas to check on residents’ welfare. At its peak, what was the worst ice storm in 40 years knocked out power to more than 350,000 customers.

In West Virginia, Appalachian Power was working on a list of about 1,500 places that needed repair, as about 44,000 customers in the state remained without electricity after experiencing back-to-back ice storms Feb. 11 and Feb. 15. More than 3,200 workers were attempting to get power back online, their efforts spread across the six most affected counties on Saturday.

In Wayne County, West Virginia, workers had to replace the same pole three times because trees kept falling on it.

Texas Gov. Greg Abbott met Saturday with legislators from both parties to discuss energy prices as Texans face massive spikes in their electric bills after wholesale energy prices skyrocketed while power plants were offline.

“We have a responsibility to protect Texans from spikes in their energy bills” resulting from the weather, he said in a statement.

Water woes added misery for people across the South who went without heat or electricity for days after the ice. Snow storms forced rolling blackouts from Minnesota to Texas.

Robert Tuskey was retrieving tools from the back of his pickup truck Saturday afternoon as he prepared to fix a water line at a friend’s home in Dallas.

“Everything’s been freezing,” Tuskey said. “I even had one in my own house … of course I’m lucky I’m a plumber.”

Tuskey, 49, said his plumbing business has had a stream of calls for help from friends and relatives with burst pipes. “I’m fixing to go help out another family member,” he said. “I know she ain’t got no money at all, but they ain’t got no water at all, and they’re older.”

In Jackson, Mississippi, most of the city of about 161,000 lacked running water, and officials blamed city water mains that are more than 100 years old and not built for freezing weather.

The city was providing water for flushing toilets and drinking. But residents had to pick it up, leaving the elderly and those living on icy roads vulnerable.

Incoming and outgoing passenger flights at Memphis International Airport resumed Saturday after all flights were canceled Friday because of water pressure problems. The issues hadn’t been resolved, but airport officials set up temporary restroom facilities.

Prison rights advocates said some correctional facilities across Louisiana had intermittent electricity and frozen pipes, affecting toilets and showers.

The men who are sick, elderly or being held not in dormitories but in cell blocks — small spaces surrounded by concrete walls — were especially vulnerable, according to Voice of the Experienced, a grassroots organization founded and run by formerly incarcerated people. The group said one man at Elayn Hunt Correctional Center, just south of Baton Rouge, described a thin layer of ice on his walls.

Cammie Maturin said she spoke to men at the 6,300-inmate Louisiana State Penitentiary in Angola who were given no extra provisions to protect themselves from the cold.

“They give them no extra blankets. No extra anything. For them, it’s just been fend for yourself,” said Maturin, president of the nonprofit H.O.P.E. Foundation.

In many areas, water pressure dropped after lines froze and because people left faucets dripping to prevent pipes from icing, authorities said.

As of Saturday, 1,445 public water systems in Texas had reported disrupted operations, said Toby Baker executive director of the state Commission on Environmental Quality. Government agencies were using mobile labs and coordinating to speed water testing.

That’s up from 1,300 reporting issues Friday afternoon. But Baker said the number of affected customers had dropped slightly. Most were under boil-water orders, with 156,000 lacking water service entirely.

“It seems like last night we may have seen some stabilization in the water systems across the state,” Baker said.

The Saturday thaw after 11 days of freezing temperatures in Oklahoma City left residents with burst water pipes, inoperable wells and furnaces knocked out of operation by brief power blackouts.

Rhodes College in Memphis said Friday that about 700 residential students were being moved to hotels in the suburbs of Germantown and Collierville after school bathrooms stopped functioning because of low water pressure.

Firefighters extinguished a blaze at a fully occupied 102-room hotel in Killeen, Texas, about 70 miles (110 kilometers) north of Austin, late Friday. The hotel’s sprinkler system didn’t work because of frozen pipes, authorities said Saturday.

Flames shot from the top of the four-story hotel, and three people required medical care. Displaced guests were taken to a nearby Baptist church.

Texas electrical grid operators said electricity transmission returned to normal after the historic snowfall and single-digit temperatures created a surge in demand that buckled the state’s system.

Smaller outages remained, but Bill Magness, president of the Electric Reliability Council of Texas, said the grid now can provide power throughout the system.

Abbott ordered an investigation into the failure for a state known as the U.S. energy capital. ERCOT officials have defended their preparations and the decision to begin forced outages Monday as the grid reached breaking point.

The blackouts resulted in at least two lawsuits filed against ERCOT and utilities, including one filed by the family of an 11-year-old boy who is believed to have died from hypothermia. The lawsuits claim ERCOT ignored repeated warnings of weaknesses in the state’s power infrastructure.

Also, Texas Attorney General Ken Paxton issued civil investigative demands to ERCOT and electric utility companies. His investigation will address power outages, emergency plans, energy pricing and more related to the winter storm.

___

Scolforo reported from Harrisburg, Pennsylvania.

___

Associated Press journalists Gillian Flaccus in Portland, Oregon; Ellen Knickmeyer in Oklahoma City; Jim Mustian in New York; Terry Wallace in Dallas; Jonathan J. Cooper in Phoenix; and Kimberlee Kruesi in Boise, Idaho contributed.

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Not just Facebook: Snap, Unity warn Apple’s tracking change threatens business

Snapchat on an iPhone.

Social media company Snap (which runs Snapchat) and game development software company Unity have joined Facebook in warning their investors that Apple’s imminent ad-tracking change will negatively impact their businesses.

As previously reported, Apple plans to use the next iOS update (iOS 14.5, due out in early spring) to implement a requirement that all apps on the platform gain user opt in to track users with IDFA (ID for Advertisers) tags. IDFA tags are used to track what users do across multiple apps in order to target advertising more effectively.

Social media giant Facebook has told its own investors that the coming change to Apple’s operating system could very negatively impact its advertising revenue, because this kind of tracking-based ad targeting is one of Facebook’s main ingredients for success.

It has also taken out full-page newspaper ads claiming that one effect of targeted advertising becoming less effective as a result of this change is that small and local businesses that rely on Facebook advertising will see higher costs to reach users, negatively impacting those businesses as well.

Unity made a similar case, in a way. Unity runs a mobile app advertising platform, earning much of its revenue from game and app developers on platforms like iOS. The company’s leadership said in yesterday’s earnings call that the change will affect app and game developers’ ability to efficiently gain new customers and optimize their lifetime value. The company predicts its revenues will fall $30 million in 2021 as a result of the change. However, that is estimated to be just 3 percent of the company’s overall annual revenue.

For its part, Snap (which offers many sophisticated ad products) warned investors of the effects the change could have but tried to strike a more confident tone. “We admire Apple and believe they are trying to do the right thing for customers,” said Chief Business Officer Jeremi Gorman. She said she believes Snap is well-positioned to prepare advertisers for the change, even as the potential impact was acknowledged.

As a result of concern about the Apple change, Snap shares fell 7 percent in after-hours trading despite an otherwise positive business picture, including a 22 percent increase in daily active users year over year. The stock rose back above its previous levels during today’s trading, however.

When The Information reported that Facebook leadership was seeking outside legal counsel for a potential lawsuit against Apple, it also said that many Facebook employees were opposed to the move because they did not see Facebook as “a compelling victim.” While Snap and Unity have not orchestrated PR or legal battles against Apple like Facebook has, the public might find Snap and Unity more sympathetic.

Snap is popular, but it does not dominate in the same way Facebook does, and it has been less embroiled in controversies over the spread of misinformation or privacy scandals. And Unity’s stated cause for concern is that it will miss out on revenue because its customers—game and app developers big and small—will see their own revenue fall.

Nonetheless, the companies plan to comply with Apple’s required changes, and those changes are expected to roll out this spring. Apple has already updated its app review guidelines to reflect the new policy.

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Polar vortex: Most of the country should prepare for a bitter cold snap

A “flash freeze” could accompany this storm as temperatures drop as quickly as one degree per hour, rapidly freezing any rain or melted snow remaining on the ground.

A “flash freeze” occurs when rapidly falling temperatures “quickly turn any wet or slushy roads to ice,” the Des Moines National Weather Service noted, warning it will likely create significant travel problems across the Hawkeye State on Thursday.

The arctic chill won’t spare the rest of the country either. By Monday morning 235 million Americans, or roughly 86% of the country will experience temperatures below freezing. This includes every state in the Lower 48.

Blizzard sets the stage for extreme cold

Strong winds, blowing snow and rapidly falling temperatures are expected through Friday from Nebraska to Michigan.

Blizzard warnings are in place across Central and Northern Iowa through Friday morning while winter storm warnings and advisories stretch further east to Chicago and Grand Rapids.

The criteria for blizzard conditions does not necessarily require snow to be falling from the sky.

As with this storm, only moderate accumulations are forecast, ranging from 2-5 inches in Des Moines and up to 8 inches in Green Bay. Higher totals can be expected downwind from Lake Michigan in favored Lake Effect areas, where up to a foot of snow is possible.

Ahead of the system, a wintry mix of rain and snow is forecast as temperatures briefly surge before dramatically falling behind the cold front.

Winds are forecast to gust over 45 miles per hour, blowing snow and reducing visibilities under a quarter mile across parts of Iowa. As the mercury drops and the snow begins to drift over roadways, conditions will deteriorate at a moment’s notice.

Waterloo, Mason City and Fort Dodge are all predicted to experience “extreme” travel impacts from this potent storm, according to the NWS hazards matrix.

Even though blizzard warnings are in place, high snow totals won’t be the biggest threat from this storm. The real show stopper will be the cold air settling in early next week.

A flash freeze to hit the Midwest

The coldest air will start diving south through the upper Midwest and Great Lakes on Saturday. Places in Central Wisconsin could see temperatures plummet to -25F on Sunday morning, with high temperatures struggling to make it to zero. Overnight lows could be cold enough for your car’s antifreeze to solidify.

“We get two to three of these cold snaps every year,” said National Weather Service Office Meteorologist Marcia Cronce. “We are heading into the coldest air of the season, it will feel jolting.”

“As temperatures fall some 25-30 degrees below seasonal averages, parts of the Upper Midwest will near the thresholds necessary to cancel, or in the case of 2021, virtualize classes,” said CNN Meteorologist Pedram Javaheri.

St. Paul school districts cancels classes if the 6 a.m. forecast for the following day is -25F or windchills are forecast to drop to -35F.

The polar vortex is coming

This frigid cold is compliments of the polar vortex, a large area of low pressure located near the poles. During the winter months it breaks down, sending cold air that has been bottled up. It can be responsible for extremely frigid temperatures and huge plunges of cold air.
The polar vortex has been weakened even more so this year by the Sudden Stratospheric Warmings that occur about six times a decade.

This will cause the polar vortex to weaken even further, making for bitterly cold conditions.

The cold trend will continue for the next 10 days.

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