US stocks close lower as energy shares drag

US stocks ended lower on Tuesday (14 March) as energy stocks fell ahead of a likely interest rate hike by the Federal Reserve. US crude oil dropped more than 1% and the energy sector was the worst performing S&P 500 sector.

The S&P 500 index dropped 8.02 points, or 0.3%, to settle at 2,365.45. The energy sector led 10 of the 11 main sectors down, with materials and industrials settling down 0.9% and 0.8%, respectively. The consumer discretionary sector was the only gainer, ending up less than 0.1%.

According to MarketWatch, crude oil prices dropped 1.4% to settle at $47.72 a barrel after an OPEC report revealed production in Saudi Arabia is rising. "The continued drop in oil has got stocks rolling over again," Peter Coleman, head trader at Convvergex, told CNBC. "A little out of stocks into bonds."

The Dow Jones Industrial Average fell 44.11 points, or 0.2%, to end at 20,837.37. Chevron Corp and General Electric Co shares were the lead decliners, falling 1.8% and 1.1% respectively. CNBC reported that shares of Walt Disney and Wal-Mart contributed to gains.

Meanwhile, the Nasdaq composite declined 18.97 points, or 0.3%, to close at 5,856.82. MarketWatch noted that the main indexes were only a few percentage points below their all-time highs.

The Federal Open Market Committee kicked off its two-day meeting on Tuesday (14 March) and is expected to announce a rate increase after the meeting concludes on Wednesday (15 March). The market sees a 93% chance that the Fed will vote in favour of a rate hike, according to data from the CME Group.

"What they have following that [rate hike], I think, is what's making people nervous," JJ Kinahan, chief market strategist at TD Ameritrade, told CNBC. "What will be their new targets?" The Fed is expected to vote for three rate increases this year.

The benchmark 10-year Treasury yield dropped to 2.595%, while the shorter-term 2-year yield briefly ticked higher at 1.38%. The US dollar index rose 0.4%, with the euro near $1.061 and the yen around 114.7 yen against the greenback. According to MarketWatch, the British pound marked its lowest level against the dollar since the start of this year, trading near $1.2152.

Gold prices dropped $0.50 to settle at $1,202.60 an ounce.