US stocks fall sharply amid global market turmoil on fears of possible US interest rates hikes
New York (Mar 10) U.S. stocks fell sharply as fears over possible interest rate hikes by the Federal Reserve roiled financial markets around the globe. In Europe, investors dumped stocks and fled to government bonds, pushing yields to record lows. The euro sank to a 12-year low against the dollar.
KEEPING SCORE: The Dow Jones industrial average fell 280 points, or 1.6 percent, to 17,715 as of 3:11 p.m. Eastern time. The Standard & Poor's 500 index fell 30 points, or 1.4 percent, to 2,049. The two indexes are now slightly lower for the year.
The Nasdaq composite lost 68 points, or 1.4 percent, to 4,874. The Nasdaq is up nearly 3 percent so far in 2015.
FED FEARS: Traders think it's more 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.
The prospect of a Fed hike, which would be the first in nine years, is unnerving investors. Ultra-low rates have been a boon for stocks in a bull market that turned six years old on Monday. The low rates have allowed companies to borrow cheaply and made their stocks seem more attractive relative to bonds by pushing down yields.
The S&P 500 has tripled since hitting at recession low in 2009.
CURRENCY TURMOIL: The euro dropped 1.3 percent against the dollar to a 12-year low of $1.07. The drop came a day after the European Central Bank began buying bonds to lower long-term interest rates in a program called quantitative easing, or QE. Lower interest rates can weaken a currency by making it less attractive compared to foreign ones.
The central bank in Japan is also buying bonds to lower long-term rates. The dollar slipped 0.3 percent against the Japanese currency to 121.10 yen. The U.S. Fed ended its bond-buying program last year.
DOUBLE TROUBLE: Though a stronger dollar sounds good, it hurts Corporate America in two ways. It can lose out to foreign rivals selling in the U.S. because their cheaper currencies make their products less expensive when translated into dollars. And sales by U.S. companies abroad shrink when converted from euros and other weaker currencies into dollars.
The double trouble comes at a bad time U.S. companies 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.
SPLIT POLICIES: Widespread expectations that the U.S. will also start raising short-term rates this year will likely attract investors seeking higher yields, especially because central banks in other major economies are moving to ease rates. When central banks move in opposite directions, it can cause disruptions in the global flow of capital, which, in turn, can weigh on stock prices.
ANALYST TAKE: "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."
GREEK FEARS BACK: Though European stocks have been supported in recent weeks in the run-up to the European Central Bank's 1 trillion euro ($1.2 trillion) bond-buying program, tensions remain over Greece. Analysts say the eurozone is better protected now than two years ago against a potential default in Greece, but the possibility continues to create uncertainty. Eurozone creditor states are currently withholding rescue money from Greece until the country comes up with a list of suitable economics reforms. Greece faces a cash crunch this month.
EUROPEAN SLUMP: France's CAC 40 lost 1.1 percent while Germany's DAX fell 0.7 percent. Britain's FTSE 100 dropped 2.5 percent.