Fed warns U.S. equity valuations 'well above' median

Tue Jun 21, 2016 5:09pm EDT
 
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By Rodrigo Campos

NEW YORK (Reuters) - The Federal Reserve on Tuesday delivered its starkest warning yet under Chair Janet Yellen that by its assessment U.S. stocks are pricey.

"Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades," the Fed's twice-annual Monetary Policy Report, the U.S. central bank concluded.

"All asset prices are high and they’re high because of the Fed's activity," said Jack DeGan, chief investment officer at Harbor Advisory in Portsmouth, New Hampshire.

"I think the Fed has made it clear that we’re in a low-interest-rate environment, so valuations of all financial assets are going to remain high."

It's not the first time the Yellen Fed has weighed in on stock market valuations in the closely watched report.

Most famously, in its July 2014 report it referred to the "substantially stretched" prices for biotechnology and social media stocks.

That warning helped trigger a short-lived selloff in both sectors, though a year later an ETF tracking social media stocks had gained 3.0 percent and another following biotechs had risen 50 percent.

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The Federal Reserve headquarters in Washington September 16 2015. REUTERS/Kevin Lamarque