MARKET SNAPSHOT: Dow Suffers Biggest Point Drop In 5 Months

By Anora Mahmudova and Barbara Kollmeyer, MarketWatch

Fed nervousness pushes dollar to multiyear highs against rivals

NEW YORK (MarketWatch) -- The Dow Jones Industrial Average suffered its worst one-day point drop in five months as investors began pricing in a rate hike by the Federal Reserve by the middle of the year, while other central banks are embarking on a quantitative easing path.

ECB's bond purchases sent European government bond yields sharply lower, while euro fell to multiyear lows against the dollar, wreaking havoc on foreign exchange and commodity markets.

Tuesday's free fall erased 2015 gains for the S&P 500 and Dow industrials, pushing the indexes slightly negative for the year.

The S&P 500 (SPX) closed 35.26 points, or 1.7%, lower at 2,044.2, it is biggest one-day percentage decline in nine weeks. Selling on Wall Street was broad-based, with all 10 main sectors finishing with losses.

The Dow Jones Industrial Average (DJI) dropped 332.8 points, or 1.9%, to 17,662.9, it is worst point drop since Oct 9, 2014.

The Nasdaq Composite (RIXF) ended the day down 82.6 points, or 1.7%, at 4,859.8, on the 15th anniversary of its all-time high.

The surging dollar hammered commodities, while investors piled into Treasurys, sending yields on the 10-year note down sinking seven basis points to 2.12%.

"When the Federal Reserve hikes rates this year, it will not be in tandem with other major central banks, quite the opposite," said Kristina Hooper, U.S. investment strategist at Allianz Global Investors.

"Launching of QE in Europe has sent the euro to new multiyear lows, making the dollar even stronger and that also worked as a de facto tightening," she added.

"While investors fear the actual tightening, they know ultimately it is good for the economy. Today's selloff is sparked by big reactions in German bund yields and foreign-exchange markets," Hooper noted.

The dollar surged against the euro (EURUSD) and the Japanese yen (USDJPY), sending the dollar index (DXY) up 1% to 98.56.

Quincy Krosby, market strategist at Prudential Financial attributed Tuesday's selloff to an investor anxiety.

"Investors know that the day of rate hikes is now getting closer and closer given the robust jobs report on Friday. And traders know that when rates rise something always breaks and it is usually the weakest link. But when anxiety escalates, all asset classes will get punished," said Krosby

Also read: Unemployment rate may soon start with a '3' (http://www.marketwatch.com/story/unemployment-rate-may-soon-start-with-a-3-2015-03-09)

Too gloomy: Michael Arone, chief investment strategist at State Street Global Advisors' U.S. business, wrote that investors are underestimating the amount of additional global stimulus and its impact on market returns in the months ahead, "almost regardless of what the Fed does."

He noted that the Fed's policy is still accommodative. That combined with new liquidity from other central banks is likely to keep riskier assets such as stocks in high demand.

Read: This 6-year-old bull market's big winners: biotech, pharma and value stocks (http://www.marketwatch.com/story/this-6-year-old-bull-markets-big-winners-biotech-pharma-and-value-stocks-2015-03-09)

Stocks to watch: Shares of Apple Inc.(AAPL) fell 2.1% a day after the company revealed its new wearable Apple Watch (http://www.marketwatch.com/story/apple-shows-off-new-smartwatch-macbook-2015-03-09).

Barnes & Noble Inc. (BKS) shares plunged 10% after quarterly earnings came in below Wall Street's expectations.

Urban Outfitters Inc.(URBN) jumped 12% after earnings topped analysts forecasts late Monday.

Read more in Movers & Shakers column (http://www.marketwatch.com/story/apple-in-spotlight-after-watch-reveal-barnes-noble-earnings-on-tap-2015-03-10).

Other markets: The Nikkei 225 index (http://www.marketwatch.com/story/chinese-stocks-retreat-after-data-fuel-deflation-fears-2015-03-10) finished 0.7% lower (http://www.marketwatch.com/story/chinese-stocks-retreat-after-data-fuel-deflation-fears-2015-03-10), despite a weaker yen, which in the past has proved a boost for stocks and exporters. Chinese stocks fell after data showed China's wholesale deflation worsened in February.

European stocks finished the session sharply lower.

A surge in dollar pressures prices in commodities. Oil prices (http://www.marketwatch.com/story/oil-prices-hanging-on-fresh-supply-data-2015-03-10)(CLJ5) settled more than 3% lower at $48.29 a barrel. Meanwhile, gold prices (http://www.marketwatch.com/story/gold-slips-failing-to-hold-positive-momentum-2015-03-10)(GCJ5) settled at the lowest level since November, falling 0.6% at $1,160.10.

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