Fed: These Two Industries Look Overvalued - Real Time Insight


Shutterstock photo

The Federal Reserve released its semi-annual Monetary Policy Report on Tuesday morning ahead of Fed Chair Janet Yellen's two-day meeting with Congress.

In the report, the Fed discussed the recent all-time highs in the stock market but stated that "valuation measures for the overall market... were generally at levels not far above their historical averages."

However, the central bank did make special mention of two particular industries.

"[V]aluation 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."

Later in the report, the Fed went on to say that "[e]quity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms."

Shares of Global X Social Media Index ETF (SOCL) and iShares Nasdaq Biotechnology ETF (IBB) were both down more than -2% after the report was released, but both ETFs have rebounded a bit since then.

These comments are reminiscent of Alan Greenspan's famous "irrational exuberance" speech in late 1996 (of course, the bubble inflated even higher as the bull market ran for more than three years after this speech).

So what do you make of the Fed specifically calling out valuations in the biotech and social media industries here?

Chime in below!

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ISHARES NDQ BIO (IBB): ETF Research Reports

GLBL-X SOCL MDA (SOCL): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks
More Headlines for: SOCL , IBB

More from Zacks.com




Equity Research
Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com