US stocks are once again in the middle of a spotlight; this time, it’s not about their decline, but because the European Central Bank thinks they are overpriced.
On Wednesday, the central bank said on a report that the prices of US stocks appear “stretched,” and could be risky for the EU market.
“Prices seem detached from their underlying fundamentals,” the ECB said in the biannual report.
They worry that some of the financial assets in the American market is overpriced and may cause shocks down the line, the officials warn.
US market status
Currently, the US stock market is one of the most volatile markets following the continuous and arduous tit-and-tat with China. The trade war has caused investor anxiety pulling the market down. The Dow is at its fifth consecutive decline, the longest decline streak for the last eight years.
Washington’s recent ban on Chinese tech and smartphone giant, Huawei did not help the situation at all. If there’s something it has done, that is to make the market more fragile than it was before. But things are not as bad as one when it comes to the general market. In fact, the Dow is still up 16% from its December low and 6% away from hitting its all-time high.
However, analysts and market watchers argue that the continuous trade war against China may bite the US anytime soon. Goldman Sachs analysts said recently that if the United States moves forward with threatened tariffs on all remaining imports from China, it will push the US stock market down an additional 4%.
The ECB warned that high valuations, along with concerns about the economic cycle, have caused a sell-off of global stocks before.
“While the December turmoil was orderly and without immediate widespread consequences, the episode illustrated that investor sentiment could prove unpredictable,” the bank said.