Yellen and Fed raise flag over some U.S. equity valuations

(Adds graphic, additional details on valuation)

By Rodrigo Campos and Caroline Valetkevitch

July 15 (Reuters) - The Federal Reserve on Tuesday voiced concern about stretched valuations in certain corners of the U.S. markets, including small cap, biotechnology and social media stocks, as well as the leveraged loan market.

The unusual comments from the Fed's monetary policy report - the first time in 14 years that the Fed has commented specifically on valuation of a particular equity sector - that accompanied Fed Chair Janet Yellen's semi-annual testimony to Congress, hit stocks in riskier sectors of the market.

Yellen said in remarks to the Senate Banking Committee that valuations across equity markets remain generally in line with long-term averages, but the Fed's report said the forward price-to-earnings multiples for smaller companies and those in the biotechnology and social media sectors appear "high relative to historical norms."

Well-known names such as Facebook, LinkedIn and Yelp slipped after the news. Shares of Yelp Inc were among the hardest hit, falling 2.8 percent to $69.14 a share, and the Nasdaq Biotech Index also fell, losing 1.6 percent.

"It's very unusual for the Fed chairman to take a micro view of a specific industry group. Usually the comments are very top level. So I think the Fed is a little more in tune with what has been bothering the market. My thought is it's late, but not too late in terms of recognition," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

Last week the equity market weakened, with notable declines in small-cap names. The Russell 2000 has lost 4.6 percent in the last seven trading days, while the Nasdaq Biotech index is off by 4.8 percent.

Throughout 2013, social media and biotechnology shares were among the market's most popular names, posting massive gains as investors, particularly hedge funds, piled in. Meanwhile short-sellers who saw the stocks as overvalued were forced to reverse those bets as they lost money. The Global X Social Media ETF, which includes Facebook and LinkedIn among its holdings, rose 64 percent in 2013.

The gains occurred even as these stocks sport lofty price-to-earnings ratios that far surpass valuations of the broader index. While the benchmark Standard & Poor's 500 stock index has a forward P/E of about 15.5, Facebook's forward P/E is about 55 and Twitter is at 145.

Hedge funds were caught this year, when those stocks slumped in late February in a selloff that continued for several weeks. The stocks rebounded in June, but most have failed to attain earlier heights. The SOCL exchange-traded fund is down 11.4 percent in 2014.

"These are the sub-industries that have caused a lot of long time stock watchers to scratch their heads," said Kim Forrest, senior equity research analyst, Fort Pitt Capital Group in Pittsburgh.

"I'd say she'd like to deflate these bubbles with a little bit of stock talk."

Also in the report, the Fed notes that issuance of "speculative-grade corporate bonds and leveraged loans has been very robust, and underwriting standards have loosened," with lower-rated issuers sporting higher debt-to-equity ratios.

The last mention of specific equity sectors appears in a Fed monetary policy report in July 2000, when it says that "growing unease about the lofty valuations reached by technology shares and rising default rates in the corporate sector may have given some investors a better appreciation of the risks of holding stocks in general."

Art Hogan, chief market strategist at Wunderlich Securities in New York, said the comments also recall former Fed Chairman Alan Greenspan's statement in 1996 during a speech, when he asked whether "irrational exuberance has unduly escalated asset values," which sparked a brief selloff in stocks.

"Am I surprised? Absolutely! It's off the script," Hogan said.

"It's not what we're used to and it's certainly not something that we ever got from (former Fed Chair Ben) Bernanke." (Reporting By Dan Burns, Rodrigo Campos, Herb Lash and Caroline Valetkevitch; Writing by David Gaffen; Editing by Chizu Nomiyama)

  • Trump Surrogates Continue Their Apologist Tour to Election Day
    The Fiscal Times

    Trump Surrogates Continue Their Apologist Tour to Election Day

    It’s a thankless job being a Donald Trump surrogate these days. The job fell to campaign manager Kellyanne Conway and Republican National Committee Chairman Reince Priebus this weekend, and both twisted themselves in verbal knots casting the Trump campaign as something other than a foundering ship that’s headed to the bottom. After promising to deliver a “closing argument” in a speech on Saturday in Gettysburg, PA, Trump instead dedicated part of his remarks to promising to sue each of the dozen or so women who have accused him of sexual assault.

  • Coke and Pepsi are finally ditching sugar
    Business Insider

    Coke and Pepsi are finally ditching sugar

    This past week we learned that PepsiCo is finally turning against sugar. On Monday, PepsiCo announced that by 2025, two thirds of its drinks will have 100 calories or fewer from added sugar, per 12 oz serving. Currently, these types if sugary beverages make up 40% of PepsiCo's drinks.

  • America's biggest banks are closing hundreds of branches
    Business Insider

    America's biggest banks are closing hundreds of branches

    According to the 3Q earnings report, the bank has 21 million mobile banking active users and 18% of deposit transactions are completed through mobile devices. "That’s better for customers, it’s also better for our shareholders," said Donofrio.

  • Jeff Bezos, Jamie Dimon, Warren Buffett agree on the No. 1 priority for business
    Yahoo Finance

    Jeff Bezos, Jamie Dimon, Warren Buffett agree on the No. 1 priority for business

    In recent weeks, we’ve heard Warren Buffett, Jamie Dimon and Jeff Bezos talk about managing their businesses. At the Economic Club of Washington DC in September, JPMorgan CEO Jamie Dimon discussed what eventually led to his ouster from Citigroup in 1998. JPMorgan Chase is the largest bank in America.

  • Former CEO explains how to nurture star employees
    Yahoo Finance

    Former CEO explains how to nurture star employees

    High-potential performers (or Hi-Pos) stand out due to their associative thinking skills—which help solve problems and drive innovation—their strong emotional awareness, and their incredible perseverance, according to Carter Cast, a clinical professor of innovation and entrepreneurship at the Kellogg School and former CEO of, a division of Walmart (WMT). Putting a mirror up in front of people can help them recognize weaknesses, triggers, and gaps that may be impeding self-regulation and performance.

  • Japan swings back to September trade surplus

    Japan swings back to September trade surplus

    Japan swung to a bigger-than-expected trade surplus in September, as tumbling imports offset lacklustre shipments overseas, official data showed Monday. The value of Japan's exports fell again, with vehicles and steel among the worst hit sectors, as a stronger yen clouds the country's trade picture. It also reversed a surprise trade deficit in August.

  • Business
    24/7 Wall St.

    Chesapeake Energy Analysts Change Their Tune

    By the end of the day Thursday, Chesapeake stock had regained all its lost ground and added 2.8% besides to close at $6.91. Merrill Lynch raised its rating on the stock from Underperform to Neutral and raised its price target on the stock from $6 to $10. Barclays analysts saw things differently: “We remain Underweight [on Chesapeake] shares due to high financial leverage and continued negative free cash flow outlook.” Barclays’ price target is $4, with an upside case of $15 per share and a downside case of $1 per share.

  • AT&T agrees to buy Time Warner for $85 billion

    AT&T agrees to buy Time Warner for $85 billion

    By Greg Roumeliotis and Jessica Toonkel NEW YORK (Reuters) - AT&T Inc said on Saturday it agreed to buy Time Warner Inc for $85.4 billion, the boldest move yet by a telecommunications company to acquire content to stream over its high-speed network to attract a growing number of online viewers. The biggest deal in the world this year will, if approved by regulators, give AT&T control of cable TV channels HBO and CNN, film studio Warner Bros and other coveted media assets. It will likely face intense scrutiny by U.S. antitrust regulators worried that AT&T might try to limit distribution of Time Warner material.

  • Russia’s Oil Industry Is Making The Most Of A Weak Ruble

    Russia’s Oil Industry Is Making The Most Of A Weak Ruble

    While Russian federal revenue from oil and natural gas production has declined significantly in response to low oil prices, oil and natural gas companies have actually increased investments or only seen modest declines, according to the EIA. This was due to the rapid devaluation of the ruble due to international sanctions and lower oil prices. The country currently taxes hydrocarbon extraction and heavy oil exports in a structure that levies lower tax rates on companies under lower crude oil prices.

  • World
    WSJ Live

    Islamic State Burns Sulfur Stocks Near Mosul

    On Saturday a plume of noxious smoke drifted over a base with U.S. troops involved in the Iraqi offensive to retake the city of Mosul. Islamic State militants had set fire to sulfur stocks at a factory south of Mosul on Thursday. Photo: Reuters

  • 8 Things You Should Never Keep in Your Wallet

    8 Things You Should Never Keep in Your Wallet

    That overstuffed wallet of yours can’t be comfortable to sit on. It’s probably even too clunky to lug around in a purse, too. And with every new bank slip that bulges from the seams, your personal information is getting less and less safe. With just your name and Social Security number, identity thieves can open new credit accounts and make costly purchases in your name. If they can get their hands on (and doctor) a government-issued photo ID of yours, they can do even more damage, such as opening new bank accounts. These days, con artists are even profiting from tax-return fraud and health-care fraud, all with stolen IDs. We talked with consumer-protection advocates to identify the eight things

    Bloomberg Video

    6th Party Plenum: What Is China's Agenda?

    Oct. 24 -- Liu Li-Gang, chief China economist at Citigroup, discusses China's 6th party plenum in Beijing and what could come out of it. He speaks to Bloomberg's Stephen Engle and Rishaad Salamat on "Bloomberg Markets."

  • Business
    Money Talks News

    9 Tips to Ensure You’ll Have Enough to Retire

    Life expectancy for women and men in 1970 was just short of 71 years, for example, so retirement funds did not have to see most people to age 90 or 100. Today, those of us approaching retirement are playing a very new game. Will Social Security be your primary source of income in retirement?

  • Lifestyle
    ABC News

    Before You Hire a Contractor, Learn From Couple's Basement Woes

    THE ABC NEWS FIXER — Oct 22, 2016, 8:37 AM ET Read Jerry’s original letter to the ABC News Fixer below, and see how The Fixer helped get their money back. Also, check out The Fixer’s tips for the next time you need to hire a contractor for work on your home. Dear ABC New Fixer: We hired a contractor to design and build a bar for our basement. He took our $4,000 deposit and never provided the design and gave us the runaround for months. We've asked for our money back multiple times, but every time, he says he doesn’t have it or it's “a cash flow issue." Interestingly, he has his own reality show on the Discovery Channel about building high-quality bars. He also opened a tavern next to his workshop.

  • 3 Great Dividend Stocks That Could Double Their Payments -- The Motley Fool
    The Motley Fool

    3 Great Dividend Stocks That Could Double Their Payments -- The Motley Fool

    According to the latest economic data, average household income is down 2.4% from its peak in 1999. That implies that most Americans have not gotten a real raise in years. That said, while employers are stingy to their employees, companies are pretty generous to their investors. In fact, the following three companies are likely to double the income streams they pay investors over the next few years. A pipeline of income growth One of the reasons why refining giant Phillips 66 (NYSE:PSX) launched its midstream MLP Phillips 66 Partners (NYSE:PSXP) was to give investors an opportunity to collect a rapidly growing cash flow stream. That is why, when the MLP went public in late 2013, it stated that

  • Technology
    Associated Press

    Attacks on the internet keep getting bigger and nastier

    Manchester, New Hampshire-based Dyn Inc. said its server infrastructure was hit by distributed denial-of-service, or DDoS, attacks. The attack temporarily blocked some access to popular websites from across America and Europe such as Twitter, Netflix and PayPal. Members of a shadowy hacker group that calls itself New World Hackers claimed responsibility for the attack via Twitter, though that claim could not be verified.

  • Business

    In insurance, Big Data could lower rates for optimistic tweeters

    This could lead to future insurance cover based on "sentiment analysis", in which Big Data and artificial intelligence make predictive models ever more accurate. Swiss Re says technological advances will cut the price of insurance protection and help individuals and firms make better decisions through programmes that offer advice and incentivise improvements in areas such as health and driving. Social media monitoring is one of several advances insurers are examining to improve the pricing of policies.

  • Dominos CEO: We got ahead of the curve in technology
    Yahoo Finance

    Dominos CEO: We got ahead of the curve in technology

    Other than the company’s new recipe rolled out in 2010, in one word: technology. “We got into it early,” said CEO Patrick Doyle. Doyle said a big part of the company’s success is “early investment.” And he added the company hasn’t stopped.

  • Sports

    Hamilton beats title rival Rosberg to pole

    By Alan Baldwin AUSTIN, Texas (Reuters) - Triple Formula One world champion Lewis Hamilton won a qualifying battle with Mercedes team mate and title rival Nico Rosberg on Saturday to secure pole position for the U.S. Grand Prix. Hamilton, 33 points behind the German with four rounds remaining, has won three of the past four races in Austin but had never before managed to seize top slot on the starting grid in Texas. The Briton's fastest lap of one minute 34.999 seconds was 0.216 quicker than Rosberg, who starts alongside him on the front row, and also the quickest yet at the Circuit of the Americas.

  • Business

    Italy's front line in fight to save banks: a storage room

    Storage rooms crammed with loan documents have emerged as a hidden front line in Italy's battle to save its banks from the threat of financial crisis. Dozens of analysts have been toiling in back offices of the nation's third-largest lender, Monte dei Paschi di Siena, in the first stage of a campaign to sell or recover much of Italy's 360 billion euros ($395 billion) worth of problem loans. "Ours is a painstaking job," said Luca Mazzoni, chief executive of Protos, which has been hired by Monte dei Paschi.

  • GM

    GM to add SUV production line at China JV in 2017: Xinhua

    General Motors Co plans to launch a new SUV production line at its joint venture factory in the Chinese central city of Wuhan during the first half of 2017, the official Xinhua News Agency reported on Sunday, citing company sources. SAIC General Motors (SGM), a joint venture between China's SAIC and General Motors, started operations at the Wuhan plant last year. The new production line will be able to produce 360,000 vehicles a year, bringing the combined capacity to 600,000, Xinhua said.

  • ExxonMobil’s CEO Thinks Saudi Arabia’s Oil Market Outlook Is Dead Wrong -- The Motley Fool
    The Motley Fool

    ExxonMobil’s CEO Thinks Saudi Arabia’s Oil Market Outlook Is Dead Wrong -- The Motley Fool

    Saudi Arabia's energy minister recently warned that there could be a global oil supply shortfall in the coming years, which could push crude prices much higher. Driving this view is the expectation that production from legacy wells will decline by a significant amount over the next few years and that there is not enough production in the pipeline from megaprojects to offset these declines. It is a view shared by others in OPEC, with its former secretary general also warning about a potential future crude shortage and price spike. That said, ExxonMobil (NYSE:XOM) CEO Rex Tillerson thinks this view is incorrect. In his opinion, the Saudis are missing the fact that shale drilling has dramatically

  • Wall Street’s 15 favorite energy stocks as oil prices rebound

    Wall Street’s 15 favorite energy stocks as oil prices rebound

    Oil prices have surged 16% in a month, leading to speculation there might be a sustained rally for the most widely traded commodity. That, of course, would help shares of U.S. oil-related companies, which have made efforts to become more efficient when energy prices starting tumbling in the summer of 2014. So we have put together a list of the most highly rated oil-related stocks for investors. This chart shows that West Texas crude oil US:CLX6 at about $50 a barrel, is still down 50% from where it was three years ago. A month ago, it was trading at $43.03: Signs of better times OPEC Secretary General Mohammad Barkindo has expressed confidence that Russia will participate in the cartel’s effort

  • AT&T-Time Warner may signal start of new media industry consolidation

    AT&T-Time Warner may signal start of new media industry consolidation

    WASHINGTON/NEW YORK (Reuters) - The tie-up of AT&T Inc and Time Warner Inc , bringing together one of the country's largest wireless and pay TV providers and cable networks like HBO, CNN and TBS, could kick off a new round of industry consolidation amid massive changes in how people watch TV. Discovery Communications Inc gained 3.6 percent, AMC Networks Inc rose 3.9 percent and Scripps Networks Interactive Inc jumped 5.6 percent. Media content companies are having an increasingly difficult time as standalone entities, creating an opportunity for telecom, satellite and cable providers to make acquisitions, analysts say.

  • Business

    Aussie Bank's 7000-Mile Blockchain Experiment Could Change Trade

    When the Marie Schulte rounds the breakwater off the Chinese port of Qingdao in early November, bankers on two continents will be watching anxiously. In particular, they’ll be focused on 88 bales of cotton worth approximately $35,000 that the container vessel is carrying -- not because of the value of the goods, but because of the technology attached to the shipment. Unloading the goods at the end of their 7,000-mile journey from Houston will mark the final stage of an experiment by Commonwealth Bank of Australia, Wells Fargo & Co. and the trading firm Brighann Cotton to prove for the first time that the combination of much-hyped technologies -- blockchain and smart contracts -- can deliver real-world benefits.