If you’re trying to understand today’s stock market and are having some degree of difficulty, you’re not alone.
The markets are confusing enough sometimes for experts, so they can be particularly baffling for laypersons. Still, a few economic basics ought to be pretty simple to understand, right?
Wrong – apparently.
About a year ago, as documented by the Zero Hedge website, Federal Reserve Chairwoman Janet Yellen noted that some stocks were “substantially stretched” – as in, overvalued. One of the sectors she mentioned was the biotech sector:
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. …
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.
“Extremely overheated“
With such a declaration from someone widely considered to be the top financial advisor in the country that biotech stocks are not worth as much as they are selling for, you might think that investors would flee the sector by selling off their biotech stocks sooner rather than later, in order to take profits.