The seventh year of the U.S. bull market is off to a rocky start.
U.S. stocks fell sharply on Tuesday, wiping out this year's gains for the Dow Jones industrial average and the Standard & Poor's 500 index. Investors are nervous about the likelihood of the first increase in U.S. interest rates in nine years and a plunge in the value of the euro.
Investors dumped stocks from the start of trading and the selling accelerated as the day wore on. All 10 industry sectors in the S&P 500 closed lower.
The Dow sank 332.78 points, or 1.9 percent, to 17,662.94. The S&P 500 fell 35.27 points, or 1.7 percent, to end at 2,044.16. The Nasdaq composite lost 82.64 points, or 1.7 percent, to 4,859.79. The Nasdaq is still up nearly 3 percent so far this year.
The prospect higher interest rates is unnerving investors. The Fed's ultra-low rate policy, in place since 2008, has allowed companies to borrow cheaply and has made stocks more appealing relative to bonds by pushing bond yields lower. The S&P 500 has tripled since hitting a recession low on March 9, 2009.
A Fed rate increase would also be likely to drive up the value of the U.S. dollar even more. Though a strong dollar sounds good, it can hurt U.S. companies. It makes their goods costlier for foreigners and shrinks the value of profits they collect overseas.
“Regardless of whether the Fed hikes in June or September, it's coming and it's not very far away,” said Craig Erlam, senior market analyst at OANDA. “That makes the dollar very strong compared to its peers.”
On Tuesday, the euro dropped 1.3 percent against the dollar to a 12-year low of $1.07.
Talk of U.S. rate hikes comes as central banks in other major countries are trying to jolt their economies to faster growth by lowering borrowing costs. On Monday, the European Central Bank began buying bonds to lower long-term interest rates in a program called quantitative easing, or QE. The central bank in Japan has a similar effort underway. The U.S. Fed ended its bond purchases last year.
When central banks move in opposite directions, it can cause disruptions in the global flow of capital into bonds and currencies and, in turn, stocks.
The hit to U.S. companies from the stronger dollar comes as they struggle to meet high earnings targets. In October, earnings per share for the S&P 500 were expected to jump 12 percent in 2015, according to S&P Capital IQ. Now, earnings per share are expected to increase just 1.5 percent.
Steven Ricchiuto, chief economist at Mizuho Securities, thinks U.S. markets are in for trouble as the Fed moves to raise rates.
“Earnings are not improving here, and you're getting weaker potential overseas earnings,” he said.
Traders think it's likely that the Federal Reserve will raise interest rates in June given a strengthening U.S. jobs market. A government report on Tuesday showed U.S. employers advertising the most job openings in 14 years in January. That followed a report on Friday that the unemployment rate had fallen to 5.5 percent last month.
Markets also fell in Europe. Britain's FTSE 100 index lost the most, 2.5 percent.
Investors are worried that Greece may run out of money soon. Analysts say Europe is better protected now than two years ago against a potential Greek default, but the possibility continues to create uncertainty. Greece's lenders are withholding rescue money until it comes up with a list of economics reforms. Greece faces a cash crunch this month.
“The Greek government is pushing the envelope with its creditors and the market is scared by the prospect of another long, drawn-out debt negotiation,” said David Madden, market analyst at IG.
Bonds in several European countries rose on Tuesday, sending yields lower. In Germany, France, the Netherlands, Spain and Italy, yields on 10-year government bonds hit record lows, according to data from Tradeweb.
Among stocks in the news:
— Barnes & Noble dropped $2.50, or 10 percent, to $22.36 after reporting fiscal third-quarter profit that fell far short of Wall Street expectations. Revenue also fell due to weakness in its retail and Nook businesses.
— Credit Suisse surged after the Swiss bank sought to turn the page on a period of scandals and fines by replacing its CEO with the head of British insurer Prudential, Tidjane Thiam. Credit Suisse rose $1.57, or 6.7 percent, to $25.11.
In the U.S. bond market, the yield on the 10-year Treasury note fell to 2.13 percent from 2.19 percent late Monday.
The price of oil fell sharply on further indications of rising global supplies as Iraq production appeared to be returning to market after weather-related disruptions. Benchmark U.S. crude fell $1.71 to close at $48.29 a barrel in New York. Brent crude, a benchmark for international oils used by many U.S. refineries, fell $2.14 to close at $56.39 in London.
In other futures trading on the NYMEX:
— Wholesale gasoline fell 5.7 cents to close at $1.818 a gallon.
— Heating oil fell 2.6 cents to close at $1.814 a gallon.
— Natural gas rose 5.4 cents to close at $2.732 per 1,000 cubic feet.
Precious and industrial metals futures closed lower. Gold lost $6.40 to $1,160.10 an ounce, silver fell 14 cents to $15.63 an ounce and copper fell five cents to $2.62 a pound.