Investor jitters over the possibility the Federal Reserve is ready to raise interest rates this year roiled Wall Street Friday, handing the stock market its worst day in more than two months.
The Dow Jones industrial average sank nearly 400 points, its worst single-day loss since June. The broad slump wiped out two months of gradual gains, jolting the market out of a mostly flat course over the past several weeks.
Phone and utilities stocks, which investors have sought out this year for their high dividends, fell far more than the rest of the market. Energy companies, which have also gained a lot this year, took a drubbing as the price of crude oil fell.
Remarks by a Fed bank president early Friday fueled growing speculation among traders that the central bank could be ready to lift its key interest rate for the first time since December 2015. Ultra-low interest rates have been a key driver of an extended stock market rally.
"We have a good probability that we're getting it by the end of the year," said JJ Kinahan, chief strategist at TD Ameritrade.
The Dow lost 394.46 points, or 2.1 percent, to 18,085.45. The Standard & Poor's 500 index slid 53.49 points, or 2.5 percent, to 2,127.81. The Nasdaq composite index lost 133.57 points, or 2.5 percent, to 5,125.91.
The three indexes notched their biggest losses since June 24, just after Britain voted to leave the European Union. They S&P 500 also had its worst week since early February.
Friday's swoon was a swift reversal for the market. The Nasdaq set record highs on two consecutive days earlier this week. And the Dow and S&P 500 hit new highs last month.
The signs of a rough day appeared early Friday as the market opened lower. Then investors got wind of the remarks by Fed Bank of Boston President Eric Rosengren, who said a case could be made for the central bank to raise its key interest rate sooner rather than later.
The Fed is scheduled to hold a policy meeting later this month. In recent weeks, few Fed observers have expected the Fed to lift rates this month, speculating that a December hike is more likely.
"We have been in that camp, still believe it will be a December move, rather than a September move," said Bill Northey, chief investment officer of the Private Client Group at U.S. Bank. "But September cannot be ruled out at this point."
The prospect of rising interest rates sent bond prices lower, pushing the yield on the 10-year Treasury to its highest level since late June. It climbed to 1.67 percent from 1.60 percent late Thursday.
As bond yields rose, investors sold off high-dividend stocks like utilities and phone companies. Those stocks have been in favor among investors seeking income while interest rates and bond yields remained ultra-low. AT&T fell $1.48, or 3.6 percent, to $39.71, while Verizon slid $1.78, or 3.3 percent, to $51.82.
Oil prices closed lower after rallying a day earlier. Benchmark U.S. crude fell $1.74, or 3.7 percent, to close at $45.88 a barrel. Brent crude, used to price international oils, slid $1.98, or 4 percent, to close at $48.01 a barrel.
Falling oil prices hurt several oil and gas production and drilling companies. Diamond Offshore Drilling led the decliners in the S&P 500, losing $1.80, or 10.3 percent, to $15.60. Transocean shed 64 cents, or 6.1 percent, to $9.83, while Marathon Oil slid $1.07, or 6.4 percent, to $15.67.
Not all stocks had a rough day.
Strong quarterly results helped lift furniture and housewares retailer Restoration Hardware and fiber optic components supplier Finisar. Restoration Hardware gained $1.34, or 3.8 percent, to $36.63. Finisar added $2.97, or 12.8 percent, to $26.20.
Disappointment over Thursday's decision by the European Central Bank to keep monetary policy unchanged continued to weigh on European markets. Germany's DAX fell 1 percent, while France's CAC 40 lost 1.1 percent. Britain's FTSE 100 was down 1.2 percent.
In Asia, concerns over North Korea's latest nuclear test hit stocks in South Korea. The Kospi index fell 1.3 percent. Japan's benchmark Nikkei 225 rebounded from an initial drop to finish little changed, while Hong Kong's Hang Seng rose 0.8 percent.
In other energy trading, wholesale gasoline fell 6 cents to $1.36 a gallon. Heating oil lost 5 cents to $1.43 a gallon. Natural gas slipped a penny to $2.80 per 1,000 cubic feet.
Among metals, gold slid $7.10 to $1,334.50 an ounce, while silver fell 31 cents to $19.37 an ounce. Copper dipped a penny to $2.09 a pound.
In currency markets, the dollar rose to 102.70 yen from 102.49 on Thursday. The euro slipped to $1.1226 from $1.1257.