June 17 (Bloomberg) -- U.S. stocks fluctuated, after a two- day advance in the Standard & Poor’s 500 Index, as the cost of living rose more than forecast in May before the Federal Reserve’s policy decision.
Medtronic Inc. advanced 1.8 percent as brokers including Morgan Stanley and Credit Suisse Group AG raised their ratings on the company. An index of home builders slid 1 percent as housing starts dropped more than forecast last month.
The S&P 500 fell 0.1 percent to 1,936.68 at 10:58 a.m. in New York, erasing an earlier gain of 0.2 percent. The Dow Jones Industrial Average climbed 23.21 points, or 0.1 percent, to 16,804.22. The Russell 2000 Index of smaller companies rose 0.5 percent. Trading in S&P 500 companies was in line with the 30- day average for this time of day.
“We’re going to be bouncing around today,” Paul Zemsky, the New York-based head of multi-asset strategies at Voya Investment Management LLC, said in a phone interview. The firm oversees $220 billion. “People are reluctant to commit large amounts of capital before the Fed decision tomorrow because it could be a game changer. More likely than not it won’t be, but people don’t want to regret their timing.”
U.S. stocks rose 0.1 percent yesterday as corporate deals and growth in American manufacturing overshadowed escalating tension in Iraq. The S&P 500 dropped 0.7 percent last week as Sunni insurgents in Iraq occupied more territory and oil prices jumped to an eight-month high.
The benchmark index has advanced 5 percent this year, reaching a record on June 9, as equities were boosted by better- than-forecast economic data and monthly asset purchases by the Fed. The S&P 500 is trading at 16.4 times the projected earnings of its members, up from 15.5 times at the beginning of the year.
Equities fell earlier today as data showed the cost of living in the U.S. rose more than forecast, reflecting broad- based gains that signal inflation will move closer to the Fed’s goal. The consumer price index increased 0.4 percent, the biggest advance since February 2013, after climbing 0.3 percent the prior month.
“Probably the most troubling number for investors is the CPI number,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which oversees $65 billion in assets, said by phone. “Both numbers put those inflation readings around the Fed’s target policy of 2 percent. That to me suggests that the Fed, in looking at that, could say we run the risk of inflation being hot and could suggest pulling forward an increase of rates.”
A pickup in inflation lessens the threat of a prolonged drop in prices that hurts economic growth, giving Fed officials reason to continue to scale back their unprecedented bond-buying program. Continued hiring and faster wage gains will be needed to boost demand and enable consumers to cope with higher prices.
The Fed begins its two-day policy meeting today in Washington. The central bank will reduce the pace of monthly asset purchases by $10 billion to $35 billion, economists project. Some 62 percent of 58 economists in a Bloomberg survey predict the Fed will halt bond buying at its October meeting.
Officials led by Chair Janet Yellen will release a new set of quarterly forecasts for unemployment, inflation, economic growth and the benchmark federal funds rate at the conclusion of their meeting tomorrow. In March, officials predicted their target rate, now close to zero, would be 1 percent at the end of 2015 and 2.25 percent a year later.
An S&P index of homebuilders dropped as a Commerce Department report showed builders broke ground on 1 million U.S. homes in May, a 6.5 percent decline. The median forecast of 78 economists surveyed by Bloomberg projected May housing starts would come in at a 1.03 million pace. Permits decreased 6.4 percent to a 991,000 annualized rate.
D.R. Horton Inc. slid 1.7 percent to $23.30 and KB Home fell 0.9 percent to $16.94.
Eight out of 10 major industries in the S&P 500 retreated, with energy and utility shares sliding 0.6 percent to pace declines. Financial stocks added 0.5 percent for the biggest gain.
Medtronic gained 1.8 percent to $61.12. Morgan Stanley upgraded the maker of medical devices to overweight, similar to a buy recommendation, from equal weight, citing potential returns from its deal to buy Covidien Plc. Credit Suisse and RBC Capital Markets also recommended buying the stock.
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