Testimony of Federal Reserve’s Chair, Janet Yellen, Turns the Stocks Sour.

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By Jessica Schultz on July 17, 2014 Consumer Staples

Stocks that were previously doing well and gaining volume turned sour and reversed their courses, on Tuesday, following the comments of Federal Reserve’s Chair, Janet Yellen. According to Fed Chair, valuation of some stocks is stretched significantly.

During the former part of the day, the stocks shot up when the earnings report released by Johnson & Johnson, Goldman Sachs and JPMorgan Chase surpassed the expectations, and the Dow Jones jumped up to make a new intraday record. However, the stocks started slumping down during the latter part of the day when the Fed Chair, Janet Yellen, gave her testimony in front of the Congress, on the overly stretched stocks of social media and biotech sector. Janet Yellen, during her testimony, before the Congress, stated that the stocks of some companies are significantly stretched. She further mentioned that the companies with stretched stocks are “smaller” companies related to the biotechnology and social media sector. According to the Fed Chair, the valuation metrics of these firms seem overly stretched especially when these firms, during the early part of the year, saw a significant recession in the equity prices.

The Dow Jones, in the early part of the day, hit an all time high figure of 17,112.28 when the earnings report hit the market. However, the average of Dow fell down by 0.2 once the news of Janet Yellen’s testimony reached the market. Talking about Nasdaq composite and Standard & Poor’s 500 index, the figures dropped by 0.9 percent and 0.5 percent respectively.

Goldman and JPMorgan, two of the biggest financial giants of the market, covered the stocks of Citigroup. The share prices of Goldman were up by 0.7 percent and the JPMorgan stocks gained 3.9 percent when the earnings of Citigroup exceeded Wall Street estimates.

Tuesday’s news revealed some corporate deals: Reynolds American, a cigarette manufacturing company, was buying its rival company, Lorillard, for a total of $27 billion. Shares prices of both these companies sank down; Reynolds American fell down by 4 percent whereas Lorillard dropped by 7.4 percent.

Moreover, the European markets were also running low and trading less, with DAX index falling by 0.7 percent and FTSE 100 index falling by 0.5 percent. The stock markets in Asia, however, were doing well due to the promising economic statistics in the country of China. As far as the regions of Japan and Hong Kong are concerned, the Nikkei 225 was up by 0.6 percent, at 15,395.16 whereas the Hang Seng Index was up by 0.5 percent, at 23,459.96.

China has second largest economy in the whole world, and the country will be releasing its GDP reports for the second quarter of the year 2014 on July 16, 2014. The Premier of the Republic of China, Li Keqiang, said that the figures will be about 7.4 percent greater than the first quarter’s figures.

Willian Leys, trader at CMC Markets, financial derivative dealer company located in UK, said that the earnings season has just started, and it is too early to predict anything; however, the results look promising and the investors are confident.