Federal Reserve Says U.S. Stocks Have Gotten Expensive

‘Equity prices vulnerable to rises in term premiums to more normal levels’

by Anora Mahmudova
Market Watch

Even the Federal Reserve is weighing in on valuations in the U.S. stock market.

In its monetary policy report submitted to the Congress ahead of Federal Reserve Chairwoman Janet Yellen’s testimony, the central bank acknowledges that stock values have grown somewhat richer since the beginning of 2016. Here’s how they put it:

“Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades. Although equity valuations do not appear to be rich relative to Treasury yields, equity prices are vulnerable to rises in term premiums to more normal levels, especially if a reversion was not motivated by positive news about economic growth.”

The S&P 500 closed higher Tuesday, up 0.3% at 2,088 and it appears investors are shrugging off both the testimony and the report on valuations.

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