The Federal Reserve’s latest take on the U.S. economy put many investors into sell mode Tuesday, sending stocks mostly lower after a brief upward turn early in the day.
Fed Chair Janet Yellen, speaking before Congress, said the U.S. economy has yet to recover fully, but raised the possibility the central bank could raise its key short-term interest rate sooner than currently projected.
The Fed also issued a report noting that valuations for stocks in some sectors, such as social media and biotech firms, appear to be stretched, sending shares in Facebook, Twitter and LinkedIn lower.
By suggesting some stocks could be overvalued, the Fed is adding to a growing belief among some market watchers that stocks are due for a pullback, said Drew Wilson, an equity analyst at Fenimore Asset Management.
"In this type of environment when you have a lot of uncertainty, essentially you have this equilibrium that’s looking to be broken one way or another, and the Fed chair saying ‘financial bubble’ could do that," Wilson said.
Investors had plenty more to consider, including a mostly encouraging batch of corporate earnings and economic data.
The major U.S. financial market indexes were up slightly in premarket trading as JPMorgan, Goldman Sachs and Johnson & Johnson released quarterly results that exceeded Wall Street’s expectations.
Stocks finished the day mixed, with the Dow Jones industrial average eking out a tiny gain on the day.
The Dow added 5.26 points, or 0.03 percent, to 17,060.