Stocks fell broadly on Tuesday, led by sharp drops in utilities and phone companies, while US government bond prices also slumped, and gold had its worse day in nearly three years.
Investors are nervous about the timing and the pace of any increase in the super-low interest rates controlled by the Federal Reserve, and comments from central bank officials recently have added to their jitters.
Stocks rose from the open, but the gains quickly faded and the selling spread across industries. By the end of trading, 10 of the 11 sectors of the Standard and Poor's 500 index were down. It was the second day of broad declines, a weak start to a new quarter after solid returns in recent months.
Bank stocks bucked the downward trend in the market and moved higher. Citigroup rose 1.5%. Higher interest rates will mean higher profits from lending for banks.
The Dow Jones industrial average fell 85.40 points, or 0.5%, to 18,168.45. The S&P 500 fell 10.71 points, or 0.5%, to 2,150.49. The Nasdaq composite fell 11.22 points, or 0.2%, to 5,289.66.
A big driver of the day's trading was rates, with investors closely watching the yield of the benchmark 10-year Treasury note, which has risen as the price of the note has dropped. The yield on Tuesday rose to 1.69%, up more than a tenth of a percentage point in less than a week.
As the yields have risen, investors who had poured money into steady dividend payers like phone and real estate companies and utilities as alternatives to bonds have been selling because bonds are becoming more attractive as a source of income. Utilities have fallen 7% since September 22, after soaring 21% in the first six months of the year.
"Some people have gotten into areas of the market that act like pseudo-bonds, stocks masquerading as bonds", and now are shifting money out, said Tim Courtney, chief investment officer of Excencial Wealth Advisors. "The markets are reacting very badly to the increases."
On Monday, a key manufacturing gauge in the US showed surprisingly strength. Then an official at the Federal Reserve Bank of Cleveland, a "hawk" who believes the central bank should be raising rates, reiterated her position in a Bloomberg interview.
Investors are looking ahead to a report on job creation out Friday to better gauge how soon the Fed will act. The Fed is expected by most investors to wait until December to raise rates.
Bill Strazzullo, chief market strategist at Bell Curve Trading, said investors are hoping for a continued "goldilocks" situation of modest economic growth.
"The best thing for the market right now is for the economy to be strong enough to dispel the fear of recession," he said, "but not too strong that it accelerate the Fed tightening process."
The price of gold dropped sharply as investors anticipated that rates would keep rising. Higher rates diminish the appeal of gold, which investors tend to favor when they fear that low rates will encourage inflation. Gold slumped 43 US dollars, or 3.3%, to 1,269.70 US dollars an ounce.
Among stocks making news, Newell Brands rose 65 cents, or 1.2%, to 51.60 US dollars after announcing it will sell 10% of its businesses, including part of its outdoor segment and its consumer storage unit. The company owns Mr Coffee, Paper Mate, Elmer's and other brands.
The US-listed shares of Deutsche Bank rose 35 cents, or 2.7%, to 13.33 US dollars. Germany's biggest bank has been under pressure since it revealed the US Justice Department had proposed at 14 billion US dollars payment to settle an investigation into the bank's dealings in risky mortgage bonds. Its shares have been rising recently on a news report on Friday that a lower fine was in the offing.
The FTSE 100 jumped 1.3%, just shy of its all-time high of 7,122, as the pound continues to sink after Theresa May gave a clear timetable on Sunday for exiting the European Union.
Germany's DAX was 1% higher while the CAC-40 in France rose 1.1%.
In other metals trading, silver fell 1.09 US dollars, or 5.8%, to 17.78 US dollars an ounce and copper fell three cents to 2.17 US dollars a pound.
US benchmark crude oil fell 12 cents to close at 48.69 US dollars a gallon. Brent crude, the international standard, slipped two cents to close at 50.87 US dollars a barrel in London. Wholesale gasoline rose three cents to 1.50 US dollars a gallon, heating oil was little changed at 1.55 US dollars a gallon and natural gas increased four cents to 2.963 US dollars per 1,000 cubic feet.
In currency markets, the euro slipped to 1.1197 US dollars from 1.1215 US dollars and the dollar rose to 102.81 yen from 101.57 yen.