U.S. stock market hit by Nasdaq, biotech rout

NEW YORK (MarketWatch) — The Nasdaq Composite suffered its worst day since late 2011 on Thursday as investors fled biotech, Internet and other high-growth stocks, the sectors that had led the last leg up of the maturing bull market.

The Nasdaq Composite (COMP)  dropped 129.79 points, or 3.1%, its worst one-day percentage decline since November 2011. The Nasdaq Biotech index (NBI)   as well as iShares Nasdaq Biotechnology ETF (IBB)   dropped 5.6%.

The S&P 500 (SPX)  ended the day 39.10 points, or 2.1%, lower at 1,833.08, falling below its 50-day moving average and dangerously close to crossing its 100-day moving average. Selling was so indiscriminate that only about 2% of 500 members of the index closed higher.

The Dow Jones Industrial Average (DJIA)  fell 266.96 points, or 1.6%, to 16,170.22, its worst one-day percentage drop in more than two months.

The Russell 2000 index of small-cap stocks (RUT)   fell 32.30 points, or 2.8%, to 1,127.66. Panic-selling was evident from the jump in the volatility. The CBOE Vix index (VIX)   of implied volatility on the S&P 500 jumped 15% to nearly 16.

/quotes/zigman/12633939/realtime NBI 2,317.41, -138.42, -5.64% Nasdaq Biotechnology index slides

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Uri Landesman, president of hedge fund Platinum Partners, told MarketWatch today's slump is only the beginning:

"Techs and biotechs really haven't cracked yet. I think it'll happen and people will be surprised how much they can really go down. So if they crack, it could get a lot worse. It wouldn't shock me if July Fourth weekend we wake up to a 1600 S&P 500," Landesman said.

Stocks began the day lower after downbeat trade data from China rattled nerves, feeding concerns about slowing global demand. Before the opening bell, investors gave a tepid and short-lived welcome to a jobless claims report. New application for unemployment benefits dropped to the lowest level in almost seven years, suggesting that the U.S. labor market might be experiencing a spring revival.

Quincy Krosby, market strategist at Prudential Financial, said markets are adjusting to having to think for themselves as the Federal Reserve continues the taper process.

"Earnings guidance is crucial for investors as we work our way through the earnings season. The market is trying to find the appropriate equilibrium between valuations, revenue growth and guidance," Krosby said.

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Internet and software stocks retreated Thursday, as shares of Pandora Media Inc. (P)  , Facebook Inc. (FB)  , Yahoo Inc. (YHOO)  and Workday (WDAY)  led the tech sector in joining a broad market selloff.

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Bed, Bath & Beyond Inc. (BBBY)  shares fell 6.2% after the houseware retailer's forecast for the current quarter fell short of forecasts, and it posted a profit and revenue decline for the fiscal fourth quarter.