Yellen and Fed raise flag over some U.S. equity valuations
"Valuation metrics in some sectors do appear substantially stretched, particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year," the Fed said in a policy report today.
When did Alan Greenspan warn us about "irrational exuberance" in the markets? It was December 5, 1996. The S&P500 from that point continued upwards for nearly four more years, over doubling in the process before the dotcom bust. Don't hold your breath if you think a Fed warning will guarantee a correction any time soon.
Here's the thing, that makes this a major contradiction by the FED unless they attack the hundreds of financial Institutions for overvaluing all these stocks. These Institutions have "experts" mulling over valuations of all kinds of companies. Some they follow (those that they don't do not matter) and place PTs (Price Targets) on their "backs". They sell these to their customers and announce on the internet their UPgrade or Downgrade on a stock. Many chime in together. Who do you believe? Yes, do your own DD but unless you see something wrong or concerning, you usually buy stocks that pass "muster" and also have support by the Analysts. IF all these analysts would say INSM was worth $10, then you can bet the market will have it below $10. When they have it at $30 (collectively) the market does not believe them. So where does the FED come off saying the STOCKS are overvalued? Maybe some are but valuation is based on many piece parts of the company, its management, products, pipelines, sector and where/who (consumer base) they are targeting. We can't change the xx##ing rules after everyone has agreed to the process. Just a bunch of crapola and who says the market isn't "fixed"?
U.S. Stocks Fall as Fed Cites Internet, Biotech Valuation
The S&P Small cap 600 Index trades at 26 times reported profit and the Nasdaq Biotechnology Index has a multiple of more than 500, according to data compiled by Bloomberg. The broader S&P 500 has a price-earnings ratio of 18, the highest level since 2010.