Yellen Says Social Media, Biotech Stocks 'Substantially Stretched'

Federal Reserve Chairwoman Janet Yellen said Tuesday the stock market, real estate and corporate bond prices are "generally in line with historical norms," suggesting she's unconcerned about prospects for a developing bubble.

Yellen noted, however, that equities' valuation in some sectors "do appear substantially stretched." She singled out smaller firms in the social media and biotechnology industries, making the remarks in a written report to Congress prior to her testimony to the Senate Banking Committee.

Two exchange-traded funds representing the sectors appeared to respond to Yellen's remarks.

iShares NASDAQ Biotechnology Index IBB dropped 2.3 percent to $252.10; The Global X Social Media Index SOCL fell 1.93 percent to $18.78 per share.

Although broad equity price indexes have recently hit all-time highs, Yellen said valuations in general aren't far above historical averages.

"That suggests that investors are not excessively optimistic regarding equities," said Yellen.

Asked in testimony whether she saw signs a stock market bubble, Yellen said I don't think we see those things. At this point they're more isolated and not broad-based in general."

Yellen reiterated the Fed's stimulative bond purchases will come to an end in October unless indicators suggest otherwise. "That's the plan," said Yellen.

She suggested that next year the Fed may raise short-term interest rates for the first time since December 2008.

"We have to be careful about looking for situations where low rates can be dangerous to financial stability," said Yellen.