NEW YORK — Stocks tumbled to their worst day in two months Tuesday, buckling under worries about higher interest rates and their tightening squeeze on Wall Street and the economy.

The S&P 500 fell 2 percent for its sharpest drop since the market was selling off in December. The Dow Jones Industrial Average lost 697 points, or 2.1 percent, while the Nasdaq composite sank 2.5 percent.

Home Depot fell to one of the market’s larger losses after giving financial forecasts that fell short of Wall Street’s expectations. It dropped 7.1 percent despite reporting stronger profit for the last three months of 2022 than expected.

The retailer said it would spend $1 billion to increase wages for hourly U.S. and Canadian workers. That fed into broader worries for markets that rising costs for companies have been eating into profits, which are one of the main levers that set stock prices.

The other main lever is also looking precarious as interest rates continue to rise. When safe bonds are paying higher amounts of interest, they make stocks and other investments look less attractive. Why take a lot of risk on stocks if safer things are paying out more? Higher rates also raise the risk of a recession because they slow the economy in hopes of snuffing out inflation.

Rates and stock prices are high enough that strategists at Morgan Stanley say U.S. stocks look to be more expensive than at any time since 2007.