July 15th 2014 – Fed Says Some Stocks Are “Stretched”

Market View:

Great results from the big banks, smashing expectations across the board.  Also good economic reports before the open today too, but as soon as Janet Yellen commented that some stocks are in a bubble, particularly some technology stocks, the market stated to fall.

There is more to come from the Fed tomorrow, so who knows what will happen.  Assuming there are no more surprises from Mrs. Yellen I suspect we will recover a little from this choppy day and a splattering of positive earnings may help.

Market News:

U.S. stocks fluctuated on Tuesday, with investors measuring upbeat earnings from the banking sector against concern from the Federal Reserve that valuations on small-cap and high-flying names might be “stretched.”

JPMorgan Chase and Goldman Sachs Group climbed after posting better-than-expected quarterly results. Facebook and Yahoo fell after the Fed, in its monetary report, called valuations stretched for smaller social media and biotechnology stocks. Lorillard declined after Reynolds American said it would purchase its rival cigarette maker for about $25 billion.

In semi-annual testimony before the Senate Banking Committee, Fed chair Janet Yellen said the central bank’s monetary stimulus was still necessary, given “significant slack” in the labor market and that inflation remained under the Fed’s target.

Economic reports had a measure of consumer spending rising in June, with core sales – which exclude cars, energy and food costs — up 0.6 percent after an upwardly revised 0.2 percent in May.

Other data Tuesday had factory activity in the New York region expanding sharply in July; U.S. import prices rising less than expected in June; and another report showed U.S. business inventories rising in May.

Overseas markets: European markets ended lower, after Germany’s ZEW index of investor sentiment came in weaker than expected. Concerns about Portugal’s Banco Espirito Santo also weighed on European markets. BES shares plunged amid concerns that a company linked to the troubled bank might miss a debt payment. But the stock recovered later in the day following upbeat comments from its CEO.

Asian markets were mixed.

Wednesday

Earnings: Bank of America, BlackRock, PNC Financial, Northern Trust,US Bancorp, Charles Schwab, Abbott Labs, Yum Brands,eBay,United Rentals, Textron, St. Jude Medical, Taiwan Semiconductor,First Republic Bank, SanDisk

8:30 a.m.: PPI, 9:00 a.m.: TIC data, 9:15 a.m.: Industrial production, 10:00 a.m.: NAHB survey, 10:00 a.m.: Fed Chair Yellen before House Financial Services Committee for semiannual testimony, 2:00 p.m.: Beige book

News Sources:  CNBC and CNN Money