US close: Stocks end sharply lower as financials drop

US stocks closed sharply lower on Tuesday, with financials under the cosh amid concerns that President Donald Trump will fail to deliver the promised tax cuts that have been propping up markets recently.

The Dow Jones Industrial Average fell 1.1% to 20,668.01, the S&P 500 ended down 1.2% to 2,344.02 and the Nasdaq declined 1.8% to 5,793.83. The Dow and the Nasdaq suffered their worst day since September, with losses coming two days ahead of a congressional vote on healthcare policy.

Banking stocks, which have benefitted from hopes that Trump will scale back bank regulation, took the biggest beating.

Chris Beauchamp, chief market analyst at IG, said: “The crowded trades are the ones that are seeing the heaviest selling in the US, with banks and consumer discretionary firms down heavily; with excellent timing, it is these that have been highlighted as some of the most popular investments by fund managers in the most recent Merrill Lynch survey. Like the recent unwind in oil, it is never wise to hang around in a jam-packed trade since the unravelling can be ugly.”

Elsewhere, technology giant Apple reversed earlier gains to end lower, after it announced expanded iPad and iPhone offerings and a new app similar to Snapchat.

General Mills lost ground after the Lucky Charms maker reported that sales fell for the seventh straight quarter.

Housebuilder Lennar fell despite its first-quarter earnings coming in slightly ahead of analysts' expectations.

FedEx shares slumped after the company’s quarterly results failed to meet expectations.

In currency markets, the dollar was down 1% versus the pound, as sterling shot higher after data showed UK inflation overshot the Bank of England's 2% target in February for the first time in more than three years.

The greenback was 0.6% weaker versus the euro, which jumped to a six-week high after independent centrist Emmanuel Macro performed well in the first televised French presidential debate on Monday.

On the data front, the current account deficit shrank to $112.4bn in the fourth quarter from $116bn in the third, which was well below the consensus forecast of $129bn.

The deficit represents 2.4% of the country’s GDP, slightly below the 2.5% in the previous quarter.

As far as Fed speak is concerned, Kansas City Fed President Esther George gave a speech on the economy at an event in Washington while New York Fed President William Dudley spoke earlier on Tuesday in London.

According to Reuters, he said banks have a “long way to go” in reforming their corporate culture.