The seventh year of the U.S. bull market is off to a rocky start.
U.S. stocks fell sharply 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 of 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.
Also, a Fed rate increase probably would drive up the value of the U.S. dollar even more. Although 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.
