U.S. stocks recovered some of the early losses but ended lower Thursday on mounting fears that the Federal Reserve's next interest-rate hike could come as early as June.
The S&P 500 SPX, -0.37% fell 7.59 points, or 0.4%, to 2,040.04 and turned negative for the year. The drop was led by a 1% loss in industrials, and a 0.9% decline in financials, with six of the S&P 500's 10 sectors in negative territory.
The Dow industrials DJIA, -0.52% fell 91.22 points, or 0.5%, to 17,435.40. At session lows, the blue-chip index was down 197 points, briefly turning negative for the year. Goldman Sachs Group Inc. GS, -3.28% and Boeing Co. BA, -2.22% down 3.3% and 2.2% respectively, led losses. The Dow closed 4.8% below its all-time closing high of 18,312.39 set on May 19, 2015.
Meanwhile, the Nasdaq Composite COMP, -0.56% slipped 26.59 points, or 0.6%, to 4,712.53.
Thursday's moves follow the release of minutes from the Fed's latest meeting, which emphasized the central bank's intent to raise interest rates soon, provided the U.S. economy continues to strengthen.
Read: Why optimism for stocks on Wall Street is fading—fast
Market strategists said the idea that rates could rise sooner than they expected rattled investors, causing them to dump stocks.
"It's a knee-jerk reaction," said Kent Engelke, chief economic strategist at Capitol Securities Management. The market is still "hijacked" by central-bank action, Engelke said, and "any remote hints of monetary-policy change makes stocks trade off."
Still, many analysts were questioning the central bank's hawkish posture, given doubts about the U.S. economy's strength.
With weak labor-force participation and other indications of anemic growth, the Fed is leaving itself plenty of outs for not raising rates in June, said Joe Saluzzi, co-head of equity trading at Themis Trading, told MarketWatch.
"Based on the history of the Fed, they won't raise rates because they're afraid of a market reaction," Saluzzi said. "If they see a market selloff, they will find an out."
With the probability of a June rate hike now about 26%, Saluzzi doesn't see the market as convinced, whereas a probability of more than 50% would be more telling.
"The pullback now is nervousness," Saluzzi said. "People get nervous and they sell first."
Adding to those doubts, ratings agency Moody's on Thursday cut its 2016 forecast for U.S. economic growth to 2%, down from 2.3%.
A flurry of mixed data on Thursday didn’t offer investors more clarity about the health of the economy.
The number of Americans who applied for unemployment benefits in mid-May fell by 16,000 to 278,000—with most of the drop concentrated in New York—in a reassuring sign the labor market is still fairly healthy. And a basket of leading economic indicators advanced at a quicker clip in April, suggesting U.S. growth will pick up after a slow start to the year.
But the Philadelphia Fed's barometer of regional manufacturing activity dropped further into negative territory this month, far below analysts' expectations, on a decline in new orders.
More Fed talk: Different Fed officials offered further hawkish commentary on Thursday, which momentarily amplified the market's rate-hike worries.
New York Fed President William Dudley said an interest-rate increase in June or July is possible if fresh data confirm his optimistic forecast of economic growth.
Richmond Fed President Jeffrey Lacker defended the Fed's hawkish stance in an interview with Bloomberg on Thursday, saying the case is pretty strong for a June hike.
Individual movers: Shares in Wal-Mart Stores Inc. WMT, +9.58% surged 9.6% after the giant retailer's quarterly earnings beat forecasts. Wal-Mart's shares one-day gain was its largest in more than seven years, according to FactSet.
Cisco Systems Inc. CSCO, +3.18% posted its largest gain in three months, rising 3.2%, following its upbeat results late Wednesday.
Agricultural giant Monsanto Co. MON, +3.52% jumped 3.5% as chemicals company Bayer AG BAYN, -8.12% confirmed it had approached Monsanto about a takeover.
Retailer Dick's Sporting Goods Inc. DKS, +8.56% gained 8.6% despite offering downbeat guidance.
Read more: Traditional retailers stumble in competing with Amazon
Other markets: European stocks SXXP, -1.09% closed lower, with travel-related names falling after an EgyptAir plane vanished from radar. Asian markets mostly closed in the red. The ICE U.S. Dollar Index DXY, +0.11% rose, helped by a rate hike looking more likely. That weighed on dollar-denominated commodities such as gold GCM6, -1.48% which settled 1.5% lower at $ 1,254.80 an ounce, and crude oil, which finished fractionally lower at $ 48.16 a barrel.
—Victor Reklaitis in London contributed to this article.
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