Fed Chair Janet Yellen was right and stocks are overvalued, but that doesn't mean it's time to desert the market, according to market analyst Hugh Johnson, chief investment officer at HJ Advisors.
“Social media, biotechnology ... there you’ve got valuations which are very stretched,” Johnson told
Yahoo Finance. “I don’t think stretched is a strong enough word. For the market overall, though, I think the market’s modestly overvalued.”
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Johnson echoed many other analysts in predicting a pullback in U.S. stocks is overdue.
“Common sense alone says we’re going to have some sort of a pullback in stock prices.”
But he noted the
bull market is still intact, so he recommends repositioning portfolios instead of fleeing stocks altogether. Johnson’s sector choices are healthcare stocks, technology, energy and materials.
In the event of a correction, “use that as an opportunity to add to stocks, add to your portfolio,” Johnson said.
Johnson also told Yahoo that investors should not run automatically at the first signs of international turmoil, such as events in Ukraine or Gaza.
“What you have to try to learn to do is to look through that first reaction and ask yourself the real question which is, ‘does this event change the outlook or prospects for the economy of the U.S., for the economy and earnings of Europe?’ ”
“When you see a market reaction, it’s usually a knee-jerk reaction. It’s fairly severe, it’s fairly emotional,” he said. “Stick with your strategy unless there’s going to be some fundamental change.”
The Fiscal Times asserted that individual investors could do worse than to listen to Yellen’s warning about overvalued stocks.
“More than any other single individual in the U.S. financial system,
Janet Yellen is in a position to see what is taking place in the economy and its financial markets, and to spot pockets of risk or overvaluation as soon as they appear,” the Times said. “That reason likely boils down to ‘caveat emptor.’ Yellen, in her brief time at the Fed thus far, is telling investors to look out for themselves, and right now, she feels strongly enough about this particular issue to suggest it is something we might want to worry about.”
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