U.S. Stocks Slip as Powell Flags Valuation Risks Ahead of Key Inflation Data

U.S. equities retreated for a second straight session on Wednesday as investors locked in profits with major indexes hovering near record highs. The pullback came after Federal Reserve Chair Jerome Powell cautioned that stock valuations may be stretched, just days before a closely watched inflation report.

Powell’s remarks highlighted the Fed’s delicate balancing act—supporting an economy that is showing cracks in the labor market while avoiding renewed inflation pressures. His comments drew comparisons to former Fed Chair Alan Greenspan’s 1996 warning on “irrational exuberance.”

Despite a Fed rate cut earlier this month that fueled a September rally, investors are now weighing the path of future policy easing. Some analysts noted that with the S&P 500 trading at 23–24 times expected earnings—implying 15% annualized growth over the next five years—valuations appear lofty, prompting some profit-taking.

On the day, the Dow Jones Industrial Average fell 171.50 points, or 0.37%, to 46,121.28. The S&P 500 lost 18.94 points, or 0.28%, to 6,637.98, while the Nasdaq Composite shed 75.62 points, or 0.33%, to 22,497.86. Valuation gauges remain near their highest since 2021, with a further rise pushing them toward levels last seen during the dot-com boom.