A plunge in once-soaring technology shares sent
Erstwhile darlings such as
The sell-off was less a result of economic developments as it was the hard reality of a momentum-driven stock market.
Tech and biotech stocks, many of them small and unproven, had dominated the market earlier this year.
Traders pounced on fast-rising shares such as Trip-
Advisor Inc., FireEye Inc. and Ani Pharmaceuticals Inc. More than five dozen Nasdaq stocks gained 50% or more from early February through early March.
But frenzies never last. A cooling that began in early March hit Nasdaq hard last week and intensified Thursday.
The Nasdaq composite index skidded 129.79 points, or 3.1%, to 4,054.11. It was the worst decline in percentage terms since November 2011.
The tech-heavy index has tumbled 7% from its most recent peak on March 5.
The iShares Nasdaq Biotechnology Index ETF (exchange-traded fund) shrank 5.6% on Thursday and is down 19% in the last six weeks.
Momentum traders "only care about one thing: Where it's going tick by tick, moment by moment, day by day," said Marc Pado of DowBull Consulting in Lake Tahoe. "The swings are much more volatile in these types of names."
The spillover effect hurt the broader market.
The Dow Jones industrial average dropped 266.96 points, or 1.6%, to 16,170.22. The Standard & Poor's 500 index was off 39.10 points, or 2.1%, to 1,833.08.
Small stocks, which have led the market in recent years, have been clobbered lately. The Russell 2,000 index of small company stocks fell 2.8% on Thursday. It's down 6.7% since early March.
Thursday's selling came despite relatively sanguine economic news, including a decline in initial claims for jobless benefits to 300,000 — a level not seen in nearly seven years and well before the Great Recession began.
But investors were concerned about data showing an unexpected drop in exports from China, a decline that renewed concerns about the growth prospects of a key global economic engine.
Investors, also worried about first-quarter U.S. corporate profits, are backing away from stocks whose valuations had become stretched in the last two months. Earnings in the first quarter are expected to drop for just the second time in four years.
Though the U.S. economy is still on the mend, investors hoping for a burst of growth have been continually disappointed.
"It's about earnings and the economy," said Jack Ablin, chief investment officer of BMO Private Bank in Chicago. "The acceleration we had hoped for in earnings and revenue and the economy may not be there."
From recent highs last month, Facebook shares fell 17.9% to $59.16 and Netflix dropped 26.4% to $334.73, while in biotech, Intercept fell 42.7% to $264.68 from $462.26.
Thursday alone, shares of
Investors lately have shifted into more conservative sectors, such as utilities and healthcare, that churn out steadier growth.
Investors also may be unloading stocks given the approach of summer, DowBull's Pado said. An old credo on Wall Street holds that investors should "sell in May and go away."