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Yellen expects to raise rates this year

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(Bloomberg) — U.S. stocks fluctuated as data showed the fastest rise in consumer prices in two years and Federal Reserve Chair Janet Yellen said she expects to raise interest rates this year, though the pace of further increases will be gradual.

Boeing Co. fell 1.6 percent, while airline shares dropped. Energy companies retreated with the price of oil. Hewlett- Packard Co. added 3.3 percent after its results exceeded forecasts. Intuit Inc. climbed 2.9 percent as quarterly sales beat estimates. Deere & Co. rose 4.1 percent after raising its 2015 profit forecast.

The S&P 500 Index slipped less than 0.1 percent to 2,130.10 at 2:37 p.m. in New York, after closing Thursday at a record. The Dow Jones Industrial Average lost 20.66 points, or 0.1 percent, or 18,265.08. The Nasdaq Composite Index rose 0.1 percent, topping its all-time high. Trading in S&P 500 companies was 24 percent below the 30-day average for this time of day. Markets are closed Monday for the Memorial Day holiday.

“The comment that a hike would be gradual might’ve eased some fears that maybe rates were going to increase quickly once they began,” said Joe Bell, a Cincinnati-based senior equity analyst at Schaeffer’s Investment Research Inc. “We’ve pushed up against some resistance and we’re consolidating here. Even with positive news, the reaction was always going to be moderate.”

Yellen expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow. While the labor market is nearing full strength, “we are not there yet,” she said Friday in a speech in Providence, Rhode Island.

Consumer Prices

Delaying first rate increase until employment and inflation return to the Fed’s objectives “would risk overheating the economy,” Yellen said.

A report Friday showed the cost of living excluding food and fuel rose at a faster pace than expected in April, indicating inflation is inching toward the Fed’s goal. The core consumer-price index climbed 0.3 percent, the biggest gain since January 2013. Recent mixed economic reports had prompted investors to push back estimates for when the Fed will begin raising rates, helping to drive equities to all-time highs.

Reports Thursday showed sales of existing homes in April unexpectedly dropped, after the March pace was the strongest in almost two years. A series of factory reports yesterday indicated the industry remains tepid this month against a backdrop of weaker global growth and a strong dollar.

Most Fed officials have said they are likely to raise rates this year, though they haven’t specified precisely when. Economists expect an increase in September, according to a Bloomberg survey.

Sensitive Markets

How markets react when they do finally tighten is a source of concern for Fed officials, who have kept the benchmark federal funds rate near zero since December 2008. Chair Yellen and her colleagues are fretting that bond yields near record lows could surge once the Fed starts raising rates, according to minutes of their April meeting released this week.

Higher costs of everything from mortgages to car loans could result, potentially putting the fragile economic recovery at risk.

The S&P 500 was poised for a third consecutive weekly gain, the longest streak since February. The index yesterday snapped a two-day losing streak after three successive sessions of all- time highs. The Dow reached a record Wednesday, topping its previous closing high set on March 2.

The Chicago Board Options Exchange Volatility Index fell Thursday to its lowest level this year. The gauge, known as the VIX, extended the drop Friday by 1.1 percent to 11.98.

Transports Fall

Transportation shares resumed their slide after bouncing Thursday from their worst drop in two months. Kansas City Southern and Delta Air Lines Inc. fell at least 1 percent. The Dow Jones Transportation Average sank 0.7 percent.

Energy companies declined along with oil as the dollar gained for the fourth time in five days, reducing the appeal of commodities priced in the U.S. currency. Hess Corp. and Oneok Inc. dropped at least 1 percent.

The dollar also weighed on consumer staples shares as the stronger U.S. currency can dent profits from overseas business. Tyson Foods Inc. and Philip Morris International Inc. lost more than 1 percent.

“Any time you do get a little bit stronger data, people kind of flinch,” said Matt Maley, an equity strategist at Miller Tabak & Co. in Newton, Massachusetts. “Their first reaction is that the Fed is getting what it wants to raise rates. The stock market is at new highs and a little overbought on a near-term basis, and people are taking some chips off the table ahead of the long weekend.”

H-P, Expedia

Quest Diagnostics Inc. climbed 6.2 percent, and soared as much as 20 percent, after a Twitter post that was intended to convey a “market rumor” that the company was weighing a sale. Shares reached an all-time high.

Hewlett-Packard advanced 3.3 percent, the most since February, after reporting quarterly profit that exceeded analysts’ estimates as corporate spending on servers picked up ahead of the computer maker’s planned separation into two companies.

Expedia Inc. reached a record, rising 5.8 percent for the fifth straight advance and the longest streak since January. The company said Friday it sold a 62.4 percent majority stake in eLong Inc. for about $671 million.

Intuit Inc. jumped 2.9 percent to an all-time high after the TurboTax software maker reported revenue that exceeded analysts’ estimates for its most important quarter.

NetApp Inc. rebounded to lead gains in the technology group, along with H-P and Intuit. The data management company rallied 4 percent after its worst drop in three years Thursday, sparked by a cut in its full-year outlook.