US market close: Stocks take a dive as fears over June rate hike continue

US stocks continued in a downward spiral over concerns of a Federal Reserve interest rate hike in June. The S&P 500 erased gains for 2016 and, along with the Dow Jones, was around 5% below its 52-week intraday highs reached last 20 May. The Dow, which was 4.8% below its 52-week intraday high from 19 May, managed to cling to gains of 0.06% for the year thus far.

The S&P 500 dropped 7.59 points, or 0.4%, to settle at 2,040.04. Losses were led by a 1% decline in industrials and a 0.9% loss in financials, MarketWatch reported. Six of the S&P's 10 main sectors finished the session in the red. Meanwhile, utilities was the leading contributor to gains.

The Dow Jones Industrial Average plunged 91.22 points, or 0.5%, to close at 17,435.40. The blue-chip gauge fell to session lows after shedding 197 points. Gains were led by Wal-Mart, which rose 9.5%, while Goldman Sachs Group Inc (down 3.3%) and Boeing Co (down 2.2%) were the biggest contributors to losses. Goldman Sachs wiped out nearly all gains made on 18 May.

The Nasdaq Composite dipped 26.59 points, or 0.6%, to settle at 4,712.53.

"It's a knee-jerk reaction," Kent Engelke, chief economic strategist at Capitol Securities Management, told MarketWatch. Engelke said the market is still "hijacked" by central-bank action and "any more hints of monetary-policy change makes stocks trade off."

Some analyst, however, question the Fed's stance given questions about the strength of the US economy. Joe Saluzzi, co-head of equity trading at Themis Trading, noted the central bank has left itself several outs to not raise rates in June, particularly with weak labour-force participation and other signs of weak growth. "Based on the history of the Fed, they won't raise rates because they're afraid of a market reaction," he said. "If they see a market selloff, they will find an out."

Saluzzi added that the probability of a June rate hike at 26% shows the market is not convinced of a hike. "The pullback now is nervousness," he said. "People get nervous and they sell first." MarketWatch reported that ratings agency Moody's cut to its 2016 forecast for US economic growth from 2.3% to 2% adds to those doubts.

New York Fed President William Dudley commented early 19 May that June will definitely be a live meeting. Dudley added he was pleased market expectations for the probability of a June or July rate hike had moved up, CNBC reported. He noted that the Brexit decision also complicated the central bank's decision for a rate hike.

US crude oil futures for June delivery dropped $0.03 (£0.02;€0.03), or 0.06%, at $48.16 (£32.98;€42.99) a barrel. Gold futures for June delivery also dropped $19.60 (£13.42;€17.50) to $1,254.80 (£859.22;€1120.11) an ounce.

Treasury yields traded lower, with the 2-year yield around 0.88% and the 10-year yield by 1.85%. Meanwhile, the US dollar index reached highs not seen since late March before coming off highs to close around 0.25% higher, with the euro near $1.120 and the yen around 109.9 yen against the greenback.

Overseas, European stocks closed lower, with Germany's DAX down 1.48% and the FTSE 100 dropping 1.82%. In Asia, stocks closed mostly lower, with the Nikkei 225 up 0.01% and the Hang Seng down nearly 0.7%.