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Fed slaps stocks with unusually targeted comments on valuation froth

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The Janet Yellen Fed

The Federal Reserve's unusually targeted comments that biotech and social media stocks are overheated sucked the wind out of a rally that had taken the to a new high in early trading.

In a section of its Monetary Policy report released Tuesday, the Fed noted: "...signs of risk-taking have increased in some asset classes. Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms."

The small cap Russell 2000, home to small cap and many speculative names, led the declines, losing more than 1 percent in late morning trading. The Dow was off just slightly but had erased a 64-point gain that took it to a new all-time high of 17,120.