Stocks slid on Thursday as investors booked profits in the hard-charging technology sector, while analyst downgrades hurt the telecom sector and a tepid response to a government bond auction undercut sentiment.
Investors worried that signs of waning demand for government debt could raise the cost of capital and hamper the economy's recovery.
Shares of International Business Machines Corp
The semiconductor index <.SOXX> dropped 7 percent, but remains up more than 30 percent since the broader market's 12-year low of March 9. Tech has been one of the strongest underpinnings of the market's run-up since that significant low, along with bank stocks.
The auction is big news because now it's showing that maybe the Chinese don't want our bonds. If the cost of capital for the United States becomes more expensive, then the recession is going to take that much longer to get out of, said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
Mortgage rates will go higher, which will make it less attractive to buy a home again. So, it's back where we started.
The Dow Jones industrial average <.DJI> fell 112.46 points, or 1.32 percent, to 8,399.82. The Standard & Poor's 500 Index <.SPX> dropped 13.65 points, or 1.48 percent, to 905.88. The Nasdaq Composite Index <.IXIC> slid 50.26 points, or 2.86 percent, to 1,708.84.
Banks stocks also succumbed to profit-taking, a day after leaked stress test results suggested that most U.S. banks were healthier than previously thought. The KBW Bank index <.BKX> dropped 4 percent.
The results of government stress tests on the ability of the 19 largest banks to weather a deep recession will be released at 5 p.m. and are expected to show about half of the banks need more capital.
Other standout casualties were homebuilders, with the Dow Jones home construction index <.DJUSHB> off 7.3 percent. Shares of big manufacturers were also hit hard, with Caterpillar Inc
Through Wednesday, the S&P 500 <.SPX> had risen 36 percent since the March 9 low.
The U.S. government's plans to help finance its burgeoning budget deficit with more longer-term debt ran into trouble on Thursday with a dismal reception for its sale of 30-year long bonds.
The $14 billion auction met below-average demand from investors, who bid aggressively to force the government to pay a higher yield.
(Editing by Padraic Cassidy)