Global stocks slipped yesterday, with riskier equities hit hardest after the US Federal Reserve, in an unusual statement, singled out the valuation of social media and biotechnology shares as “substantially stretched”.
Bond prices fell slightly and gold was lower as Fed Chair Janet Yellen’s comments suggested interest rate hikes could come sooner than anticipated if the labour market continued to improve.
The Fed’s semi-annual monetary policy report, which accompanied Yellen’s testimony to the Senate Banking Committee, noted that overall US stock valuations were “generally at levels not far above their historical averages,” even as it singled out riskier sectors of the market.
Social media and biotechnology shares slumped following the release of the report, with the Nasdaq Biotech Index down 1.9 per cent on the day.
Overall, Yellen said the US economic recovery was incomplete and she defended the central bank’s accommodative monetary policies.
She said some signs of a pick-up in inflation were not enough for the Fed to accelerate its plans for raising interest rates, but improved labour markets might accelerate the process.
“If the labour market continues to improve more quickly than anticipated by the committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned,” she said.
That comment boosted bond yields modestly. The US 10-year Treasury note turned negative, falling 2/32 of a point in price, the yield rising to 2.554 per cent.
Gold prices fell 0.7 per cent and are down more than three per cent this week.
Copper was up 0.1 per cent.
US crude oil fell 1.7 per cent to $99.16, falling under $100 per barrel for the first time since May.
Brent crude tumbled 2.3 per cent to three-month lows as rising supplies from Libya overshadowed renewed violence in the country.
The Dow Jones industrial average was down 11.43 points, or 0.07 per cent, at 17,043.99.
The Standard & Poor’s 500 Index was down 5.71 points, or 0.29 per cent, at 1,971.39.
The Nasdaq Composite Index was down 30.34 points, or 0.68 per cent, at 4,410.08.
The MSCI World Index and a measure of European equities both lost 0.2 percent, due to weakness in Europe and the slight decline in the United States.
European shares hovered around session lows following a drop in Germany’s ZEW index of economic sentiment.
The MSCI International ACWI Price Index fell 0.2 per cent.
Yellen’s comments overshadowed some strong results from US banks.
US financial shares were boosted by results from both JPMorgan Chase & Co and Goldman Sachs Group Inc. But they pared those gains after Yellen began her testimony.
The US dollar index rose 0.2 per cent, while the euro fell to a one-month low against the dollar on higher-than-forecast inflation data from Britain.