U.S. Stocks Advance as Yellen Sees Gradual Interest-Rate Rise

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Rate Hike: What Do Fed Officials Have in Mind?

U.S. stocks climbed after the Federal Reserve said the pace of any interest-rate increases will be gradual as Chair Janet Yellen wants to see more decisive evidence of economic growth.

TripAdvisor Inc. soared 15 percent on a room-booking deal with Marriott International Inc. Procter & Gamble Co. added 1.2 percent to pace gains in consumer staples companies, while Harley-Davidson Inc. rose 3.6 percent on an expanded stock-buyback plan. FedEx Corp. fell the most in five months after its fourth-quarter profit trailed analysts’ estimates, and energy shares retreated.

The Standard & Poor’s 500 Index rose 0.2 percent to 2,100.44 at 4 p.m. in New York, after rising as much as 0.5 percent. The Dow Jones Industrial Average added 31.26 points, or 0.2 percent, to 17,935.74. The Nasdaq Composite Index advanced 0.2 percent. About 6.2 billion shares changed hands on U.S. exchanges, 1.6 percent below the three-month average.

“It looks like there’s a shallower rate hike path for 2016 and 2017,” said John Canally, chief economic strategist at LPL Financial Corp. “That should be supportive of risk assets.”

Fed officials maintained their forecast for the benchmark interest rate at the end of 2015, while lowering it for next year. Policy makers predicted the rate will rise to 0.625 percent this year, according to their median estimate. That implies two quarter-point increases. Next year, they expect the rate to climb to 1.625 percent, lower than a March forecast of 1.875 percent.

‘Goldilocks Economy’

A rebound in job growth is giving Fed officials reason to look beyond a first-quarter economic slowdown as they consider when to tighten policy. At the same time, inflation remains below their target, and central bankers say the timing of a rate increase depends on how economic data unfold.

Recent data from retail sales to wage growth have been improving, though a report Tuesday indicated builders began work on fewer houses in May following a surge the prior month. That followed a disappointing factory report on Monday that pushed stocks lower.

“We are sort of in a Goldilocks economy where we don’t have to rush to make any drastic moves,” said Myles Clouston, senior director of Nasdaq Advisory Services. “The Fed has the luxury to take their time and be thoughtful given that the economy is showing signs of improvement on multiple fronts. Things seem to be moving smoothly.”

Greece Deadlock

The S&P 500 has more than tripled from its March 2009 low, buoyed by three rounds of stimulus from the Fed. The index is down 1.4 percent from an all-time high reached last month.

During her post-statement press conference, Yellen said Greece and its creditors are faced with difficult decisions, and turmoil from a failure to reach a deal could have spillover effects on the U.S.

Greece remains deadlocked in talks with creditors and needs to seal a deal before the euro area’s bailout expires on June 30, or risk missing payments on its debt of about 313 billion euros ($352 billion). Negotiations between Greece and its creditors are close to breakdown as finance ministers prepare to meet in Luxembourg on Thursday.

The Chicago Board Options Exchange Volatility Index fell 2.1 percent Wednesday to 14.50. The gauge, known as the VIX, fell 3.8 percent yesterday, retreating from an 11-week high.

Utilities Rally

Eight of the S&P 500’s 10 main groups rose, led by utility companies, which posted their best gain in a month, and consumer shares. Gas and electricity provider NiSource Inc. jumped 3.7 percent to an all-time high as shares of its pipeline spinoff started preliminary trading. Sempra Energy and CenterPoint Energy Inc. climbed more than 1.5 percent.

TripAdvisor shares soared 15 percent, the most in four months, to lead consumer discretionary shares higher. The company announced a partnership with Marriott International that will let users of the travel-planning website book rooms at the chain’s hotels.

Harley-Davidson rallied 3.8 percent, the most since January, after boosting its share-buyback authorization by 15 million shares. Nordstrom Inc. gained 2.4 percent, its biggest climb in four months.

Reynolds American Inc. and Procter & Gamble climbed more than 1.2 percent, leading an advance among consumer staples companies as a Bloomberg gauge on the dollar fell to a one-month low. A weaker dollar helps make their products more competitive overseas.

FedEx Slides

AbbVie Inc. climbed 1.5 percent after Piper Jaffray Ltd. rated the shares overweight. Kythera Biopharmaceuticals Inc. soared 22 percent to a record after Botox maker Allergan Plc agreed to buy the company for $2.1 billion. The Nasdaq Biotechnology Index added 0.6 percent.

FedEx fell 3 percent to weigh on the transportation group. The operator of the world’s largest cargo airline posted a fourth-quarter profit that trailed analysts’ estimates, crimped by currency fluctuations and lower fuel surcharges. The Dow Jones Transportation Average slipped 0.4 percent, down for a fourth consecutive day, the longest stretch in two months.

Energy companies reversed early gains, falling with oil after a government report showed crude stockpiles at Cushing, Oklahoma, the delivery point for West Texas Intermediate crude traded in New York, rose for the first time since April and U.S. refineries unexpectedly cut operating rates. Chesapeake Energy Corp. lost 3.5 percent, while Pioneer Natural Resources Co. and Apache Corp. slid more than 2.3 percent.

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