Date
21 January 2017
US equity valuations have become stretched, according to the Federal Reserve. Photo: Bloomberg
US equity valuations have become stretched, according to the Federal Reserve. Photo: Bloomberg

US equity valuations ‘well above’ median, Fed warns

The US Federal Reserve warned on Tuesday that forward valuations for equities are well above historical norms in the country.

“Forward price-to-earnings ratios for equities have increased to a level well above their median of the past three decades,” the central bank said in its latest Monetary Policy Report.

The valuation measure cited by the Fed, the forward P/E ratio, now stands at 16.47, according to Thomson Reuters DataStream.

This ratio has expanded by 6.8 percent from the 15.43 level where it stood back on Feb. 10.

The median multiple for the past 30 years is 14.86.

Tuesday’s report marked the first time since Janet Yellen took office as Fed chair in February 2014 that the central bank has characterized overall equity valuations as being well above their norms, Reuters noted.

In a previous report in July 2015, the Fed made no specific reference to stock market valuations. 

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