U.S. stocks have declined after Janet Yellen, Federal Reserve’s Chairwoman, startled investors when warning of possible pitfalls relating to high stock price values.
The Federal Reserve’s Chairwoman, Janet Yellen, gave investors a little shake up after stating that the value of stock prices was ‘quite high’. This announcement caused a drop in U.S. stocks on Wednesday.
However, buying in the late afternoon limited losses and the primary benchmark indices only closed slightly lower.
The Dow Jones Industrial Average (DJIA) declined more than 170 points in early trading, closing 86.22 points, or 0.5% down at 17,841.98 by the close of trade. Looking at the Nasdaq Composite (COMP), this tech heavy index declined 19.68 points, or 0.4%, at 4,919.64. Meanwhile, the S&P 500 index (SPX) closed lower by 9.30 points, or 0.5%, at 2,080.16, with 8 of its 10 primary sectors trading lower. Despite this decline, the SPX is still up 0.5% YTD (year-to-date), positive for the year. Leading the losses were the technology, telecoms and utilities stocks.
Traders have already been worried about the impacts of a lower-than-expected ADP employment report causing investors to become nervous before the more closely watched nonfarm payroll (NFP) reports slated for Friday.
On a panel discussion on Wednesday, Yellen made the comments along with Christine Lagarde, the head of the IMF (International Monetary Fund), which did not assist in motivating investors.
The president at Platinum Partners, Uri Landesman, said that he agrees with Yellen’s assertion that the prices of stocks have been supported by a scarcity of alternatives, which he said is not a good reason to purchase stocks.
Landesman further said that although long-term momentum remains positive, some people are starting to become nervous, saying that at this point a correction is welcome. The last time that the stock market saw a 10% correction was in 2011.
Meanwhile, the U.S. has managed in April to create 169,000 private sector jobs said ADP, the payroll processor company. This data is on the heels of the revised, lower-than-expected 175,000 jobs created in March. The slower rate of gains in job growth may cause the Federal Reserve to delay the interest rate hike after their meeting in June.
Also, U.S. productivity dropped by 1.9% in its annual pace in the first-quarter, resulting in the 1st back-to-back decline since 2006. The drop in productivity came from businesses hiring more employees with current staff working extended hours despite a decline in goods and services production.