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The shadow of the logo of Euro is seen on a U.S. one dollar note in this picture illustration taken in Madrid March 10, 2015. The U.S. dollar hit its highest since 2003 against a basket of currencies on Tuesday as the prospect of the first rise in U.S. interest rates in almost a decade stoked global volatility, hitting stocks, crude and copper.SERGIO PEREZ/Reuters

A looming rate hike from the U.S. Federal Reserve is taking its toll on stocks, currencies and commodities. Markets were a sea of red on Tuesday as the Dow Jones industrial average shed more than 333 points, or 1.8 per cent, the S&P 500 fell 1.7 per cent and the S&P/TSX Composite index gave back more than 200 points, or 1.4 per cent.

The U.S. dollar index rose to its highest level since September, 2003, as the euro continued to crumble and the Canadian dollar retreated below 79 cents (U.S.). The U.S. dollar is soaring as investors anticipate the Fed will begin hiking rates some time this year amid consistently strong readings on the country's labour market.

But the greenback's surge is raising concerns about the bottom line for corporate America. A strong U.S. dollar poses a headwind for major U.S. multinational companies that generate a substantial portion of their revenues overseas.

"For the record, Q1 S&P 500 earnings estimates are now at –2.6 per cent," said Richard Barry, vice-president and floor governor at the New York Stock Exchange. "If the numbers stay on course, Q1 will be the first down quarter for earnings since Q3 2009," he said.

"Near-term, we see risk of a near-term 5- to 9-per-cent dip as job gains make a mid-year Fed hike likely, boosting the dollar with more earnings per share cuts," said Deutsche Bank chief U.S. equity strategist David Bianco.

Comments from non-voting Federal Open Market Committee members Richard Fisher and Loretta Mester on Monday signalled they were on board with a rate hike by June, reinforcing the view that the days of near-zero interest-rate policy from the world's most important central bank are numbered.

The VIX index, a measure of the expected volatility of the S&P 500 implied by options prices that is commonly known as the "fear index," has risen from below 13 at the beginning of March to above 16, an indication that traders expect rocky waters ahead.

However, despite Tuesday's sharp sell-off and the re-emergence of fear in the markets, many experts see no reason for a major market downturn.

"Equities do have a good reason to be cautious heading into a Fed hiking cycle, but our view is that this will drive volatility more than declines in stocks," said George Pearkes, analyst at Bespoke Investment Group. "The recent price action looks more like a natural correction back towards trend as opposed to a sudden realization that a stronger dollar is going to destroy U.S. equities."

"We're freaking out over 25 basis points that may or may not happen soon – talk to me about normalization when we think rates are going to up by 3 per cent, which can't happen right now," said Barry Schwartz, chief investment officer at Baskin Wealth Management. "I was buying stocks today, and I'll continue to buy them if they keep going on sale."

Currency markets remain unsettled. The euro, which was near $1.40 a year ago, has grown ever closer to parity with the greenback, dipping under $1.07. In contrast to a possible Fed rate hike, the European Central Bank has launched a full-scale quantitative easing program to boost the flagging European economy. European yields are hitting new lows, such as the five-year German bund yield now down to -0.12 per cent.

Low bond yields have pushed investors to increase their weighting in equities, made corporate debt less expensive to service, buoyed rate-sensitive sectors and encouraged debt-fuelled share buyback programs. As such, the effects of interest-rate normalization are likely to be far-reaching.

Consider the case of mobile chipmaker Qualcomm Inc., which announced a plan to buy back $15-billion in stock after the close on Monday. This move should help take the sting out of the hit to revenues stemming from Samsung Electronics Co.'s decision to use an in-house option for its new flagship device. However, the practice of boosting earnings growth via financial engineering could become less attractive in a rising rate environment.

On Tuesday, the benchmark Canadian index was also hit by falling oil prices, with West Texas Intermediate futures falling below $48.50 a barrel, but the collapse in crude will have a substantial effect on corporate earnings on both sides of the border.

According to the Bank of America, "the negative impact on S&P 500 earnings from lower energy earnings and capital investment greatly outweighs the positive impact of increased consumption and lower energy input costs."