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Stocks derailed by high-flyers; worst day since 2011 for Nasdaq

U.S. stocks were slammed on Thursday, with high-flying technology and biotech shares leading the declines that had the Nasdaq Composite posting its worst session in more than two years.

"The market is coming to its senses in some of the high-flying tech names; it looked like there were some pretty hefty amounts being paid for the prospect of eventual earnings. Any of us in the market more than 15 years feels the hot breath on the backs of our necks when we see such high prices being paid for tech stocks," said Jerry Webman, chief economist at Oppenheimer Funds.

"One of the interesting ironies is when you see a shift towards stocks with pretty low prices and away from momentum that tends to happen when the underlying economy is still growing," Webman added.

The Nasdaq Composite declined as much as 141 points, and ended down 129.79 points, or 3.1 percent, at 4,054.11, its hardest hit since November of 2011.

Momentum stocks including Tesla Motors, Facebook, Google, Priceline Group and Amazon.com declined, along with biotechnology companies, with Pacific Biosciences of California, Zogenix and ChemoCentryx among those hit.

"Clearly investors are nervous about high-flying momentum stocks. There is a rethink on whether better earnings and economic data will support a resumption of the momentum that was driving biotechnology and higher-flying technology stocks earlier in the year," said Kate Warne, investment strategist at Edward Jones.

"We're back to a valuation focus; investors are gravitating towards something tangible, like earnings and revenue," said Jack Ablin, chief investment officer at BMO Private Bank.

"We're entering earnings season and they are not going to have much to show. Investors want to see earnings and cash flow," said Ablin of new technology and biotech firms that have seen their shares run-up on bets for future performance.

EBay fell after reaching an accord with activist investor Carl Icahn to halt his proxy battle by saying it would appoint, at Icahn's urging, an independent director to its board. Family Dollar Stores slid after saying it would cut jobs and close hundreds of stores as the discount retailer struggles to reverse declining sales.

Rite Aid gained after the drugstore chain projected full-year revenue that beat expectations; Bed Bath & Beyond declined after forecasting quarterly profit beneath estimates. Shares of Ally Financial fell as the former financing arm of General Motors made its market debut.

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After a 283-point plunge, the Dow Jones Industrial Average shed 266.96 points, or 1.6 percent, to 16,170.22, with American Express leading losses that extended to all but two of its 30 components.

The S&P 500 declined 39.10 points, or 2.1 percent, to 1,833.08, with health care and technology pacing losses that extended to all 10 of its major industry sectors.

The CBOE Volatility Index, a gauge of investor uncertainty, jumped 15 percent to 15.89.

For every stock rising, roughly four declined on the New York Stock Exchange, where 802 million shares traded. Composite volume cleared 3.7 billion.

Equities began the day little changed, with upbeat economic data on the U.S. labor market offsetting disappointing export data from China.

The dollar turned lower against the currencies of major U.S. trading partners; the 10-year Treasury yield used in determining mortgage rates and other consumer loans fell 6 basis points to 2.634 percent.

On the New York Mercantile Exchange, gold futures for June delivery gained $14.60, or 1.1 percent, to $1,320.50 an ounce, while crude-oil futures for May delivery fell 20 cents, or 0.2 percent, to $103.40 a barrel.

The Labor Department reported jobless claims dropped to the lowest level in nearly seven years, with initial claims for state unemployment benefits dropping 32,000 to 300,000 last week, below expectations and the lowest since May 2007.

A separate report had import prices rising 0.6 percent last month after an unrevised 0.9 percent in February.

On Wednesday, stocks rallied after minutes from the Federal Reserve's last session overrode worries about the timing of future interest rate hikes by the central bank.

—By CNBC's Kate Gibson

Coming Up This Week:

Friday

Earnings: JP Morgan Chase, Wells Fargo, Fastenal

8:30 a.m.: PPI

9:55 a.m.: Consumer sentiment

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