Fed Says Social Media Stock Valuations Appear ‘Stretched’

The Federal Reserve said valuations of social media and biotechnology shares appear to be “stretched,” even as stock valuations overall remain close to historical norms.

“Equity 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,” the Fed said in its semi-annual Monetary Policy Report delivered to Congress today.

The Fed saw signs of increased risk-taking in equity markets as limited to these areas.

“Valuation measures for the overall market in early July were generally at levels not far above their historical averages, suggesting that, in aggregate, investors are not excessively optimistic regarding equities,” said the report.

The iShares Nasdaq Biotechnology ETF fell as much as 2.2 percent following the release of the report. The Global X Social Media Index ETF fell as much as 2.1 percent.

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