U.S. Stocks Slide as Dollar Gains Amid Interest Rate Concerns

                      

U.S. stocks fell, wiping out gains for the year, as the dollar strengthened to near a 12-year high versus the euro amid speculation the Federal Reserve is moving closer to raising interest rates.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. lost at least 1.5 percent as financial companies in the Standard & Poor’s 500 Index led declines. United Technologies Corp., Cisco Systems Inc. and Walt Disney Co. dropped more than 1.5 percent to pace losses among the biggest companies.

The S&P 500 retreated 1.2 percent to 2,055.26 at 10:33 a.m. in New York, falling below its average price for the past 50 days for the first time since Feb. 9. The Dow lost 233.05 points, or 1.3 percent, to 17,762.67.

“A continuation of dollar strength and euro destruction is certainly raising some concerns,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “I don’t think there was any one specific event or item that caused this, but the fact that it’s a trend that’s been going on for the last several weeks is concerning given the levels we’re at now.”

Concern the Fed may start raising interest rates this year amid a strengthening economy has weighed on equities and helped boost the dollar.

In his last speech as president of the Fed Bank of Dallas, Richard Fisher said the central bank should begin to gradually raise rates before the economy reaches full employment to avoid triggering a recession.

Dollar Strength

The S&P 500 fell 1.6 percent last week, the most since January, as data showed the jobless rate reached the central bank’s range for what it considers full employment. Policy makers next meet on March 17-18.

The Fed stands out among major central banks in accepting a higher exchange rate as a sign of economic strength. Peers from Sydney to Wellington, Tokyo, Zurich and Frankfurt are cutting rates and buying government bonds to stimulate growth and, in the process, sometimes weakening their currencies.

The dollar has rallied this year versus 14 of 16 major currencies, including the yen, pound, euro and Brazilian real.

“The dollar’s going up so much so fast you wonder what it does to U.S. economic growth down the road, to profitability,” Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees $338 billion, said by telephone.

The S&P 500 has entered the seventh year of a bull market, pushing valuations near a five-year high. The index has more than tripled from its bear-market low on March 9, 2009, buoyed by three rounds of Federal Reserve bond-buying and low interest rates.

Banks Drop

Nine of the S&P 500’s 10 main groups retreated Tuesday. Financial stocks paced declines, losing 1.6 percent, the most since January, followed by technology consumer discretionary shares.

Banks and insurers dropped at least 1.8 percent as the benchmark 10-year Treasury yield dropped the most in two weeks. Wells Fargo & Co. slipped 1.9 percent, Citigroup Inc. lost 2.5 percent and Berkshire Hathaway Inc. fell 1.6 percent.

The Chicago Board Options Exchange Volatility Index jumped 9.1 percent to 16.43. The gauge, know as the VIX, rose 14 percent last week, its biggest jump in five weeks.

Gains Erased

The S&P 500 is down 0.2 percent for the year, after rallying 11 percent in 2014 and 30 percent in 2013. The equity benchmark trails all but one of 24 developed markets in 2015, data compiled by Bloomberg show.

Dollar General Corp. and Oracle Corp. are among the final companies to post quarterly results over the next week as the earnings season comes to a close. Around 74 percent of companies that have already reported beat profit projections, while 56 percent topped sales estimates.

Analysts predict profit at S&P 500 companies will drop 5.1 percent in the current quarter after a 4.4 percent increase in the final three months of 2014, data compiled by Bloomberg show.