The prospect of higher interest rates is unnerving investors. The Federal Reserve’s ultra-low-rate policy, in place since 2008, has allowed companies to borrow cheaply and has made stocks more appealing relative to bonds by pushing bond yields lower. The S.&P. 500 has almost tripled since hitting its low on March 9, 2009, during the recession.

A Fed rate increase would also be likely to drive up the value of the dollar even more. Though a strong dollar sounds good, it can hurt American companies by making their goods costlier for foreigners and shrinking the value of profits the companies make overseas.

“Regardless of whether the Fed hikes in June or September, it’s coming and it’s not very far away,” said Craig Erlam, senior market analyst at Oanda. “That makes the dollar very strong compared to its peers.”

On Tuesday, the euro dropped 1.3 percent against the dollar to a 12-year low of $1.07.

Central banks in other major countries are trying to jolt their economies into growing faster by lowering borrowing costs. On Monday, the European Central Bank began buying bonds to lower long-term interest rates in a practice known as quantitative easing. The central bank in Japan has a similar effort underway. In contrast, the Fed ended its bond purchases last year.

When central banks move in opposite directions, it can cause disruptions in the global flow of capital into bonds and currencies and, in turn, stocks.

The hit to American companies from the stronger dollar comes as they struggle to meet high earnings targets. In October, earnings per share for the S.&P. 500 were expected to jump 12 percent in 2015, according to S&P Capital IQ. Now earnings per share are expected to increase just 1.5 percent.

David Fuller's view

Subscribers, I believe, are mostly familiar with these points.  They are certainly sufficient to correct a short-term overextended situation to the upside, as we are seeing, following February’s additional gains on Wall Street. 

US indices, including the S&P 500 could easily see further mean reversion towards their rising 200-day (40-week) moving averages.  We could also see a somewhat bigger correction, given generous valuations and the short to medium-term prospects for lower earnings estimates.  That would eventually create another buying opportunity but I maintain that the better opportunities are currently in the EU and Japan.  They are benefitting from generally lower valuations, cheaper currencies, and most of all, QE.