Stretched, as she put it in her semiannual report to congress. It was probably more specific than any fed chair has ever been about targeted groups of stocks, and it certainly caught wall street and investors by surprise. Well have much more on ms. Yellen with analysis and views you will not find anywhere else, coming up here. Now, despite yellens warning, overall, the markets still on the cusp of new highs today. The dow only needs to gain 13 points to close to be a new record. Were above the 17,068 level at the moment, with a rally of about 14 points here. The dow just at about the 17,070 mark. So, we have turned things around, bill. We opened strong and sold off after that testimony and that report this morning. Now, though, it looks in the final hour here like we could yet close positive. It is certainly a possibility. And earnings season is hitting in full force. After the bell tonight, its intel, yahoo and csx all rep t reporting. In about an hour, well have the ceo of csx here exclusively along with intels chief Financial Officer and well be looking closely at intels numbers and Marissa Mayers view at the ipo and were looking forward to the big kahuna. Yes, this summer. Every time we talk, it seems like the markets moving around, which is different, frankly, than what weve seen in this hour in quite some time. Right now the dow is up 8 points. The nasdaq down, too. And stocks will be fighting it out to see if we can close positive. Seema mody is in the middle of all the action at the nasdaq. Seema, when the fed comments hit, biotech, social media took it on the chin. Where do things stand now . These stocks continue to underperform, bill and kelly. Markets getting a bit of a surprise today from the feds Monetary Policy report, in which it noted that valuation metrics do seem stretched, especially for smaller firms in the social media and biotechnology industries. Among the social media losers, yelp, pandora, facebook, twitter all moving to the down side, all of which, by the way, are trading at forward pricetoearnings multiples. Some analysts consider them excessively high. Several biotech stocks also getting hit on the back of the fed comments. The biotech etf falling nearly 2 with social media and biotech stocks under pressure. The nasdaq underperforming the major indices. The russell 2000, home to small cap and many speculative names which just witnessed its biggest weekly drop since may of 2012 is also selling off, down nearly 1 . So, bill and kelly, those comments from the fed definitely being felt by the markets. Back to you. Yeah, it was rather unpress den dented. Lets talk about that in our closing bell exchange. Kelly connelly is with jhs capital advisers. Rob morgan. David wright from sierra funds. Cnbc contributor John Rutledge with us today as well as michael block and our own Rick Santelli as well. Yeah. Guys, lets start off here, actually, we want to talk about the fed, we want to talk about social media stocks. Michael block, what did you think about the way that janet yellen, while not herself specifically in the testimony, the report issued with her remarks this morning named these two sectors . Yeah. You know, kelly, i think this was very distribueliberate and this was coming. Ive been talking about this for a while now. Back in march, bill dudley from the new york fed, usually known as being uber dovish, came out and talked about biotech stocks and about credit and he talked about social media and farmland prices. This is a very deliberate attempt by the fed to let a little bit of air out of the tires, rather than go into full hawkish mode, which they know might derail the train. Theyre very worried about doing that. So in the short to intermediate term, while they figure that out, theyre going to make comments like this. It was buried on page 20 of the biannual report that the fed put out. A lot of people didnt see it at first. It came out. And there it is. Id say its a deliberate part of the feds communication policy under yellen and it seems to be a very interesting way for them to talk things down without knocking the whole thing over, so to speak. But is it appropriate . Thats what people have been debating today. Earlier today, the guys on fast money Halftime Report were talk being it. Our own josh brown had this to say. He thinks its appropriate. He kind of likes it. Heres what he said. I like having a fed thats aware of the market. I dont think that she needs to be so specific as to say small cap biotech or large cap, but i think to nitpick on that front is missing the point. The point is, the Federal Reserve was roundly mocked and criticized for not understanding the intersection between the real economy and the way wall street blows bubbles. All shes doing is demonstrating the fact that the fed has their eye on things. David wright, should the fed be commenting on specific sectors in the stock market, do you think . Let me agree with josh. I think all this is is a marker, as if the fed is, in fact, keeping its eye on the market. Theyve been criticized for creating bubbles, and i think theyre going to be very cautious to avoid that criticism in the future. They want to be shown to be attentive, and i think its appropriate. John rutledge, do you agree . And by the way, is she right . I think these openmouth operations are a terrible mistake. The point is to be nice about it. What the hell does janet yellen know about stock prices, small cap, large cap or otherwise . The irony is, the Federal Reserve boards full of professors who made their careers writing about rational expectatio expectations. In the beginning, that said hands off the announcements. Now theyve taken to trying to use information to manipulate prices to their own liking. I dont like it. I think its a big mistake. Kelly, what do you think . I agree. I like the fact that she is talking about this. I think that the market has a tendency to be overexuberant, and we could potentially have asset bubbles. I think with the second half of the year, were going to see some more volatility, and i think shes being very optimistically cautious and trying to warn us not to jump in too fast. I think we should be taking some profits off the table and repositioning into cash or some shortterm fixed income. Weve got the midterm elections coming up, weve got yeah. John rutledge, back to your point, with all due respect, couldnt the fed turn around and say, well, what the hell does wall street know . Its not as if the rational movements or behavior of investors prevented us from experiencing the last boombust cycle. First of all, the guys on the Federal Reserve board today made their careers saying that rational expectations dominates economics, which means the market is an equilibrium at all times and financial crises cant happen. Second of all, stock prices are wall streets day job. Yellens day job is controlling bank reserves. There are almost 3 trillion of excess reserves on the feds Balance Sheet today. Those reserves are gradually being turned into loans. The real story is that big banks are lending and small banks are not because of the regulations. Small banks lend to Small Businesses that make jobs. Thats why we have such slow growth. The feds trying to keep rates down because of that, but the fact is, Small Businesses are being creditrationed out of working capital. You can place money today at 20 to 30 in small operating companies. Lets get a couple more comments on what janet yellen said today. Ill get to you in a second, rick. I know youre itching to talk about this. Robert morgan, appropriate or not, and would you buy these sectors now that theyve been sold off after her comments . Ive got to tell you, bill, i agree with her comments, but i think its completely inappropriate. The fed has two mandates here keep unemployment as attractive as they can and keep inflation within their band. And this is completely outside of that. And i think if this is a new precedent, at any given point in time, there are going to be sectors that are stretched valuationwise, and theres going to be sectors that are very cheap. So, i think its completely inappropriate. I would agree with john and but rob, as investors, shouldnt you appreciate the fact that the feds going to go out there and try to jaw bone these stocks down . And by the way, if theyre successful with parts of the market, that should create Trading Opportunities for you . Absolutely. Well, kelly, i would just here would be my response to that. Even though i agree that these are stretched sectors, what if you have most of your financial net worth tied up . Youre an entrepreneur, youre tied up in one of these companies. I think its unfair to them as well. And Rick Santelli, what if she had said, i think long rates are too low right now . Well, wouldnt that be amazing . Listen, bill, i think you actually ought to get the prize. But what i see here is a correction in kind of covert terms as to the issue you raised last time, that saying that the stock market isnt overly valued and then to have this presented the way it was i think was basically a way to create a retraction. As to what the fed should and shouldnt say, i will just say that back in the day when we had real free markets, that price discovery is what makes a free market, not price pegging. What they should and shouldnt say . I will just say this, that when you indiscriminately spray the fire hose everywhere, i think its kind of silly to say that the pot of german yums, fourth down in the eighth row, second from the back shouldnt be getting as much water as the rest. Especially, michael block, when you consider well said. Valuations are really subjective, arent they . Theyre in the eyes of the beholder. Yeah. Its overvalued compared to what, right . And thats really what this is. Lets agree on this, philosophically, this is all pretty important, but guess what . It has been for the past six years. The feds mandate went out of the window some time ago. I compare this to a barbecue and you want some beer. You have a keg sitting there. You tap the keg and get foam out of it. What do you do . Do you pick up the keg and toss it away . No, thats going to make everyone unhappy. You play around with the tap and the air and get that beer running smooth. I know, im bringing everything back to beer. Imagine that. But im with what everyone else is saying with josh and everyone else. Yeah, whats up with that . But thats really how i look at this. Philosophically, i think im with rick in saying i dont like this either, but this is the world were in right now. Im not going to toss the keg out the window. Nobody would like that. Are we all agreed some. I guess, yeah. Its a whole new world the way we view the Federal Reserve and how transparent theyve become, thats for sure. Thank you all for your thoughts. Appreciate it, on todays market action. We have some breaking news right now. The madoff situation in this particular case, it has to do with Andrew Madoff. Scott cohn has the story. Youre getting more details, arent we . Yeah, bill bp. We told you about the allegations against Andrew Madoff from irving picard, the bankruptcy trustee. But among other things, andrew participated in destruction of emails ahead of an s. E. C. Audit of the firm in 2005, suggesting that he knew what was going on. Well, we now have word from Andrew Madoffs attorney, martin flumanbalm, who says the new allegations are unfounded. As weve stated from outset, neither andrew nor mark, the deceased brother, knew or knowingly participated in their fathers criminal conduct. They say it was neither of them who ended the fraud. Mark madoff committed suicide in 2012. He had no comment on reports that a federal criminal investigation of andrew is picking up some steam. And we should add that Andrew Madoffs health is said to be precarious. He suffers from mantel cell lymphoma and underwent a stem cell transplant last year. Surely the new allegations cant be much help. Thanks for the update. 40 minutes to the close and the dow is right around flat line, isnt it . Sharply unchanged right now. 17,055 is the level there. Again, we need to be at or above 17,068 for it to be a high. The s p is off nearly four points and the nasdaq 26. A lot still ahead. Intel ceo stacy smith breaks down the chip giants earnings coming out after the bell tonight. Intel, of course, a major tech bellwether, so what he says will pack a major punch for other Technology Stocks in the market. So, you cannot afford to miss that interview, coming up. Also, csx out with earnings after the close. The railroad giants ceo speaks with us exclusively. Hell talk earnings and share his view of the economy. But up next, as investors pour billions into exchangetraded funds, did you know that only 3 of etfs are outperforming the market . Well get the facts and then reaction from wisdomtrees chief investment strategist, coming up on closing bell. Stay tuned. In a world thats changing faster than ever, we believe outshining the competition tomorrow quires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. 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Niiice bank from almost anywhere with the citi mobile app. Candidly, its been a weird day on wall street today with the comments by fed chair yellen this morning about valuations in the stock market as it pertains to small caps and to biotechs and to social media stocks. Markets really kind of trying to figure out and make sense of it all today. And the dow was up 65 points at one time, fell. Nasdaq with those Technology Stocks down. The russell 2000, were not showing, was down also as a result of that those comments. Were just watching the market as it looks to ferret out and looking forward to earnings reports after the bell tonight. As more investors are pouring money into Exchange Traded funds, are they implying the inflows by the performances . Jeff cox runs through this sector for us. Exchange traded funds are the hottest things for investors these days, and recent indications are that investors want more. Etf providers have created about 107 new funds this year and assets under management has swelled about 11 . Theyre up to 1. 9 trillion now. In june alone, the funds took in more than 25 billion, according to state street. Now, heres the other thing about this trend. Etfs by their nature are going to underperform in the market because they track indexes. So, the only real way to create alpha with them is by trading, rather than owning them longterm. Etf. Com recently reported that just 15 out of 425 etfs they have studied have actually provided riskadjusted returns above their benchmarks, which we call alpha. Investors want more. Recent respondents to a survey say they think the partys far from over for etfs. The attraction is that theyre easy to trade, they provide diversity, and of course, allimportant tax advantages. While mutual funds remain the. Com intent Investment Vehicle with more than 11 trillion, domestically, etfs continue to make major inroads. Back to you, kelly. All right, jeff, thank you for now. Lets get more reaction on this and the etf industry. Joined right now by luciano siracusano. Hes the chief investment strategist at wisdomtree, one of the leading etf industry providers. Welcome back. Good to see you. Good to be here. Whatd you hear from jeffs report there . What do you think . Well, i think people need to understand that most etfs are designed to track the capweighted index. So, the goal is not to outperform the index, its to get the return, right. Just because you get the indexs return, doesnt mean youre average. A lot of these indexes will be 70 , 75 , 90 of all of the active managers over a long time period because theyre all competing against each other to try to beat the index. So, just getting the market return is nothing to be humbled by. In many cases, that will end up being an outstanding return. And isnt the whole point of etfs in the first place that these would be a lower cost, easier way, i guess, for a lot of people to trade in and out of the market . Does that still hold today . For a certain part of the market that trades frequently, but you can use this for buy and hold. You can buy an etf and hold it for 20 years. Etfs serve investors many different ways, but i would say the most important thing they give you is a way to diversify globally and across asset classes. And if you can get that right, the Asset Allocation comes first. Getting the fees low and getting the taxes low or zero, thats whats going to drive your returns over long periods of time. And thats why so many advisers and intermediaries have adopted etfs within their portfolios. Are you going to typically, you being etfs, are you typically going to outperform to the up side or to the down side . In other words, do you provide more protection when the markets going lower or do you provide better performance when the markets going higher . Its a great question and it depends on the strategy. So in a small cap and mid cap space in the u. S. , were one of the few companies that have been able to create etfs that have beaten the capweighted indexes by 400, 500, 600 basis points over time. Theyve principally beaten on the upside. We have a dividend indix, which measures all of the dividend payers in the u. S. The dividendweighted strategies tend to protect you a little better on the down side. But this is an important point because that dividend index covers all of the dividend payers in the u. S. Theres 1,400 of them. If you own a dividend etf or mutual fund, ask yourself, what did it do over t