US market closed lower as Yellen warns of valuation risks

07 May 2015 Evaluate

The US market closed lower on Wednesday, after Federal Reserve Chairwoman Janet Yellen spooked investors by warning of potential pitfalls for investors, referring to stock values as quite high. Traders had already been fretting after a lower-than-forecast ADP employment report raised nervousness among investors ahead of the more closely followed nonfarm payrolls report slated for Friday. Federal Reserve Chairwoman Janet Yellen warned of the risks in the stock and bond markets in the environment of low interest rates. Yellen raised concern that equity-market valuations are generally quite high and that there are potential dangers there. The Fed is also aware of the possibility that there could be a sharp jump in long-term rates when the Fed raises interest rates. But overall, Yellen added that she thought risks to financial stability are moderated.

On the economy front, for the first time in about two years, the US created fewer than 200,000 private-sector jobs for two months straight. The report will heighten fears that jobs creation - which had been the bright spot of late in the US economy - is continuing to decelerate. The US created 169,000 private-sector jobs in April, after a downwardly revised 175,000 jobs were created in March. From a peak of 284,000 jobs in November, job creation has slowed for five months in a row.

Separately, American employees and companies evidently are not as productive at work as they used to be. US productivity fell by a 1.9% annual pace in the first quarter, resulting in the first back-to-back drop since 2006. Over the past four quarters productivity has risen at a scant 0.6% rate, just one-fourth the nation’s average since the end of World War Two. Unit-labor costs, meanwhile, jumped by a 5% annual rate to mark the biggest gain in a year, though they are only up 1.1% compared to a year earlier.

The Dow Jones Industrial Average lost 86.22 points or 0.48 percent to 17,841.98, Nasdaq was down by 19.69 points or 0.40 percent to 4,919.64 while, S&P 500 was lower by 9.31 points or 0.45 percent to 2,080.15.

The Indian ADRs closed in red on Wednesday; HDFC Bank was down 1.40%, Dr. Reddy’s Lab was down 0.98%, Tata Motors was down by 0.87%, Infosys was down by 0.60% and ICICI Bank was down by 0.34%.

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