US stocks erased opening gains and traded lower after the US Federal Reserve Chairwoman Janet Yellen remarked that equity valuations were “quite high” and warned of the impending dangers.
She however added that the risks to financially instability were moderated rather than elevated and said that she did not foresee any bubbles forming.
Her comments drew attention to equities of above average valuations; that have been a concern to most investors with the major indexes having grown rapidly in the last few years.
The Dow Jones Industrial Average most recently traded 37 points or 0.2% lower at 17,888 to extend Tuesday’s 1% decline. Dow Component Microsoft Corp led the losses with a 1.3% decline on a day when the market was bearish for technology equities.
The S&P 500 Index fell by 4.26 point or 0.2% to trade at 2085.2 points with about 8 of its 10 key sectors trading in the negative. The S&P’s growth has particularly raised concern among investors currently trading at 17.5% times the last year of earnings and an average of 15.8 times in the last ten years.
The technology heavy Nasdaq Composite was down more than 9 points or 0.2% at 4929.9 points.
The shares rebounded from intra-session lows but still remained in the negative.
“At least for the moment, cooler heads are prevailing and we’ve settled into quieter trading,” Jesse Lubarsky, an equity trader at Raymond James in New York, told the Wall Street Journal
Also weighing the markets down was Employment data released today by ADP showing that US private employers added just 169,000 jobs, the lowest in more than 14 months and well below analysts’ expectations.
The weaker than expected private employment data posses a downside risk for the more comprehensive non-farm payrolls monthly report expected on Friday.
“We are more focused on Friday to see if those numbers are in line with the ADP numbers,” Tim Dreiling, a senior portfolio manager at U.S. Bank Wealth Management, which oversees $128 billion, told Reuters.
“If they come in weak, it certainly makes more improbable that we’ll have a June lift-off and then maybe calls into question what happens in September.”
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