Was Yellen yelling or just jawboning?
While jawboning has long been a prerogative of the Federal Reserve chair, Janet Yellen took it to new limits and then some Tuesday in her semi-annual Humphrey Hawkins monetary policy report to Congress.
The new Fed chief played market analyst when she announced in her prepared remarks to the Senate Finance panel that she saw sectors of small- to mid-cap stocks as being overvalued.
It was quite a call for a central banker charged with maintaining full employment and keeping inflation in check.
Yellen singled out smaller firms in two distinct industries — social media and biotech — for having market valuations she called "substantially stretched."
It may not have been the same as yelling "fire" in a crowded cinema, but it wasn't that different from initiating coverage of the relevant companies with a strong "sell."
Investors reacted accordingly.
In social media, smallish public participants Yelp and Zynga each took a 3 percent haircut. And that was in a market where the Dow Jones industrial average gained a few points.
Synageva BioPharma Corp., which specializes in breakthrough medicines for devastating diseases, saw its market cap of $2.5 billion shrink 5 percent. Obesity-treatment hopeful Orexigen Therapeutics' market cap of $660 million shed 4 percent during the day.
But in single-handedly moving two market sectors, was Yellen expressing a legitimate concern or showing her age?
Ken Wisnefski, the founder and CEO of Internet marketer WebiMax, believes it was the latter.
"A lot of people can't accept that a concept can be so highly valued," he said in reference to the so-called concept stocks that often pop up in biotech and social media. "And this includes traditionally trained economists, because it's not a model they learned in graduate school."
Ben Schachter, the senior Internet and interactive media analyst at Macquarie Group, also took issue with the Fed chair.
Schachter currently recommends Facebook and rates Twitter fully valued — but emphasizes that's a far cry from considering the sector overvalued. "I lived through the previous bubble and see very real differences today," he said.
The analyst also seemed surprised by Yellen's confidence in making such a sweeping statement about a complicated sector: "I focus on a handful of companies 24/7, yet it's difficult for me to come up with the right answers just about them."
That it wasn't difficult for Yellen — that she could make sector-specific appraisals as a sitting Fed chair — trumped the "irrational exuberance" phrase uttered by former Fed Chairman Alan Greenspan back in 1996.
That remark was interpreted to mean the entire market had overheated — until, of course, the Internet bubble burst four years later.
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