Manuel Balce Ceneta/AP
- Low interest rates are helping stocks rise, but investors should be careful in some highly valued sectors, Treasury Secretary Janet Yellen said.
- The crypto boom is also sounding alarms in Washington, she said, adding that bitcoin is a “highly speculative asset.”
- While stimulus has been blamed for risk-taking, Yellen argued additional aid is needed to fuel a full recovery.
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Stimulus hopes and falling COVID-19 case counts have lifted stocks to record highs throughout February, but some pockets of the market could be overextended, Treasury Secretary Janet Yellen said Thursday.
The stock market’s climb charged on through the week as optimism around an economic recovery offsets concerns of lofty prices. The Federal Reserve’s accommodative policy stance plays a part in permitting such elevated valuations, but investors should still be cautious, Yellen said in an interview with CNBC.
“While valuations are very high, in a world of very low interest rates, price-earnings, tight multiples tend to be high,” she said. “That said, there may be sectors … where we should be very careful.”
The treasury secretary abstained from naming which sectors she was thinking of specifically.
Yellen also addressed the cryptocurrency boom that’s taken Wall Street by storm. The adoption of bitcoin by Tesla, Mastercard, and BNY Mellon kicked off the next stage of a rally that’s seen prices skyrocket through 2021. The world’s largest cryptocurrency hit a record-high of nearly $53,000 Friday morning, bringing its year-to-date gains above 80%.
Yet as public companies embrace the token and the broader cryptocurrency market, Yellen remains wary. Bitcoin is a "highly speculative asset" that should be closely monitored as its use multiplies, she said.
"It's important to make sure that it is not used as a vehicle for illicit transactions and that there's investor protection," Yellen said. "Regulating institutions that deal in bitcoin, making sure that they adhere to their regulatory responsibilities, I think is certainly important."
Sweeping fiscal support has deemed one driver behind the stock and crypto markets' uptrends. Still, Yellen signaled the government is far from pulling back on stimulus. While progress toward a full recovery has been made, the true unemployment rate is still close to 10%, she said. Passing President Joe Biden's $1.9 trillion aid proposal is crucial to recuperating lost jobs and reviving economic activity, Yellen added.
"We're digging out of a deep hole," the treasury secretary said. "We think it's very important to have a big package that addresses the pain this has caused."