Financial News

  • 16 July 2014, 8:43

Social Media Firms 'May Be Overvalued'

The Federal Reserve has warned that social media stocks could be overvalued, in comments which rattled tech shares.

In a rare singling out of a specific industry group, the US central bank said signs of risk-taking had increased and valuations appeared "high relative to historical norms".

The report said: "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."

Shares in Yelp, Facebook and LinkedIn dipped after Tuesday's report.

The last time the Fed singled out a particular equity sector was 14 years ago as the dotcom bubble was bursting.

Its monetary policy report in July 2000 sounded the alarm on "lofty valuations" in technology shares.

Tuesday's report was released as part of Fed Chair Janet Yellen's semi-annual testimony to Congress. 

She played down talk of a stock market bubble as she addressed the Senate Banking Committee.

The Dow Jones and S&P 500 have soared to record highs this year, but Ms Yellen said that "prices of real estate, equities and corporate bonds ... remain generally in line with historical norms". 

She also said the US economic recovery was incomplete and the Fed would continue its stimulus efforts.

 

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