Bank of England warns on U.S. tech stock valuations
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The Bank of England flashed a warning about stretched valuations in global securities in a report out Tuesday.
In the summary of the BOE Financial Policy Committee meeting, they specifically pointed to U.S. dollar-denominated corporate bonds and U.S. technology equities.
The FPC meets to identify risks to financial stability, as well as agree on policy to shore up the UK financial system.
"Given the impact of higher interest rates, and uncertainties associated with inflation and growth, some risky asset valuations appear stretched," the FPC said. "Stretched risky asset valuations increase the likelihood of a greater correction in prices if downside risks to growth materialize."
"This would have a direct impact on the cost and availability of finance for corporates globally, and would affect riskier borrowers in particular."
"The risk premia on many advanced economy risky assets were around or above the middle of their historical distributions, although credit spreads for US Dollar-denominated high-yield (HYG) (JNK) and investment grade bonds were more compressed than their Euro or Sterling equivalents," the FPC said. "And some measures of US equity risk premia remained well within the lower quartile of their historical distribution, driven primarily by the continued strength in the US tech sector (NYSEARCA:XLK) (XLC) (XLY)."
"The Committee judged that better than expected economic activity in the US had played some part in the relative compression of US risk premia, as compared to other advanced economies."
"Since the July Financial Stability Report, risk-free interest rates in advanced economies have risen further, and market participants are now firmer in their expectations that many policy makers will need to maintain high rates for a prolonged period," the FPC said. "10-year US government bond yields (US10Y) have risen to around 4.75%, their highest level since 2007."
The S&P 500 (SP500) (NYSEARCA:SPY) (IVV) (VOO) is up more than 13% year to date, but the vast majority of the returns have been drive by the Magnificent 7: Alphabet (GOOG) (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
But the percentage of stocks above the 200-day moving average over time is 37%.

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