By: Adam Feuerstein | 07/15/14 - 01:10 PM EDTUpdated with current stocks prices and additional comments.
Federal Reserve Chairwoman Janet Yellen, speaking in front of Congress Tuesday, said the valuation of small-cap biotech stocks are "substantially stretched."
Investors reacted immediately. Here's the iShares Nasdaq Biotechnology Index ETF:
Some broad equity price indexes have increased to all-time highs in nominal terms since the end of 2013. However, 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. Nevertheless, valuation metrics in some sectors do appear substantially stretched-particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year. Moreover, implied volatility for the overall S&P 500 index, as calculated from option prices, has declined in recent months to low levels last recorded in the mid-1990s and mid-2000s, reflecting improved market sentiment and, perhaps, the influence of "reach for yield" behavior by some investors.
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