Yellen’s Congressional Testimony Targets Sectors07-16-2014 |
Sources: Rates Data —Bloomberg Markets as of 7/14/14; Equity Market Returns and Fixed Income and Alternatives Data—Wells Fargo Advisers and Morningstar as of 7/14/14
Yellen’s Congressional Testimony Targets Sectors
Fed Chair Janet Yellen gave her second semi-annual Congressional testimony yesterday as head of the U.S. Central Bank. While reassuring congressional leaders that the stock market as a whole is not in bubble territory, she did express concern over two sectors in particular: “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.”
While it is uncommon for the Fed to address the equity market’s valuation, seasoned Fed watchers may remember Alan Greenspan’s 1996 testimony during which he coined the phrase “Irrational Exuberance” to describe the then state of the stock market. The stock market went on to return a cumulative 107% over the next three years. While stretching valuations present risks to an investor’s portfolio and should be carefully considered, we recognize that not all sectors and certainly not all companies are created equal. We encourage a review of the sector and stock selections in your portfolio to help you fully take advantage of a rising stock market while making sure you have the proper diversification in place to withstand a pull back.
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