The stock market was hit hard Friday, capping a third week of declines, as investors reacted to a steep drop in oil prices and a jump in the value of the dollar.
Utilities, companies that make basic materials like steel, and major exporters had the biggest declines.
The sell-off came at the end of a volatile week and sets the stage for a Federal Reserve policy meeting next week. Investors will be watching closely for clues about the central bank's views on the economy and interest rates.
"This week has really been about investors' outlooks adjusting in the face of higher interest rates later this year," said Gabriela Santos, a global market strategist at JPMorgan Funds.
The Dow Jones industrial average fell 145.91 points, or 0.8%, to 17,749.31. The Standard & Poor's 500 index lost 12.55 points, or 0.6%, to 2,053.40 and the Nasdaq composite lost 21.53 points, or 0.4%, to 4,871.76.
Oil dropped sharply after the International Energy Agency said prices had further to fall because supplies were continuing to rise. Benchmark U.S. crude fell $2.21 to close at $44.84 a barrel in New York. Oil is now within 40 cents of its low for the year, and its lowest level in six years, after a drop of 10% this week. Brent crude, a benchmark for international oils used by many U.S. refineries, fell $2.41 to close at $54.67 a barrel in London.
Several energy stocks followed the price of oil lower. Transocean, an offshore oil rig company, fell 67 cents, or 4.7%, to $13.60 and Denbury Resources fell 29 cents, or 3.8%, to $7.31.
The U.S. dollar continued its advance against other major currencies. The euro declined 1.3% to $1.0486. The U.S. dollar index, which measures the dollar against a group of other currencies, increased 0.8% Friday and is up 6.4% over the past month.
The dollar's advance can be tied to two factors, strategists say. The U.S. economy is getting better, as seen by the strong jobs report last week, and the Federal Reserve is poised to raise interest rates sooner rather than later. In comparison, the European Central Bank is trying to drive down interest rates by buying government bonds, a tactic the Fed used until last fall. The ECB's program has been driving down the value of the euro.
A higher dollar makes U.S. exports more expensive abroad. General Electric, Caterpillar and Deere fell more than the rest of the market. U.S. Steel, whose products competes with cheap foreign imports, fell nearly 4% after the company announced it would idle of its operations and lay off workers. U.S. Steel lost 83 cents to $21.80.
"A rise in the dollar over a long period of time is fine, but this very rapid appreciation can directly impact companies' profits," Santos said.
Stocks that pay higher dividends, such as utilities, also had big losses. The Dow Jones utility index fell 1%. That index is down 7.4% so far this year.
A growing number of investors believe the Federal Reserve will raise its benchmark interest rate as early as June. Higher rates are typically bad for high-dividend stocks because it diminishes their appeal to investors seeking income.
In the bond market, U.S. government bond prices didn't move much. The yield on the 10-year Treasury note was unchanged at 2.12%.