Nasdaq Leads DJIA, S&P 500 ETFs Down on Rough Day for Stocks

Joel Anderson  |

The stock markets were a blood bath on Friday, continuing Thursday’s selling action. The hardest hit stocks appeared to be the sexy momentum plays that many have seen coming due for a correction for some time.

While the catalyst for the day’s action was clearly the March jobs report, which showed unemployment holding steady and the economy creating 192,000 new jobs, the downswing across the major indices doesn’t seem to be in line with even the most-negative interpretations of the report. Instead, a relatively low jobs report is likely giving the sellers the reason they need to continue bailing on popular momentum plays that many think may have run their course.

On a day when the Nasdaq showed volatile trading action, swinging hard up and then down several times in the first hour of trading before plunging almost 2.5 percent, one of the biggest losers was the biotech sector.

Looking at the most-popular ETFs that track these indices gives a clearer picture of the day’s action. The Fidelity NASDAQ Composite Index ETF (ONEQ) saw losses approach 2.5 percent, while the iShares NASDAQ Biotech Index ETF (IBB) saw losses reach as high as 4.6 percent and finished the day down just under 4 percent.

Biotech has been the source of much speculation surrounding whether or not the industry is in a bubble after a massive run in 2013, and Friday’s sharply downward trading should add more fuel to the fire for the bears’ case.

However, while starting the day even, it appears as though the losses for large-cap equities, which remained unscathed in early trading, were pulled down by the sell-off in the Nasdaq. The SPDR S&P 500 ETF Trust (SPY) fell over 1 percent, the SPDR Dow Jones Industrial Average ETF (DIA) dropped over 0.75 percent, the Vanguard Total Stock Market Index ETF (VTI) lost over 1 percent, and the PowerShares QQQ Trust (QQQ) plunged almost 2.5 percent.

The jobs report was going to be closely watched as economists look for indications that the slowing of growth during the winter months was, in fact, related to the harsh winter weather. While Friday’s numbers may not have provided the definitive proof hoped for, it also didn’t give the sort of results that might explain this sort of steep sell-off.

Instead, it’s possible that the massive run on stocks in 2013 and for part of early 2014 has resulted in a build-up of sales. Now, even relatively modest news could be the excuse necessary for some to liquidate their position, whether for profit-taking or just in anticipation of a broader pull-back.

And the heavy selling on the Nasdaq appearing to lead down the large-cap indices would seem to support this conclusion. The major losses for the Dow and the S&P don’t really start until about 11 AM ET, around the same time that the Nasdaq started turning south for good.

If true, this could mean more bad news is coming in the future for IBB and biotech stocks, as well as a range of other momentum plays that could be peaking out. Several other ETFs tracking small-cap growth stocks appeared to get hit harder than the rest of the markets, with the PowerShares S&P SmallCap Information Technology Portfolio (PSCT) dropping almost 2.75 percent, the First Trust DL Internet Index Fund (FDN) falling over 3 percent, the Global X Social Media ETF (SOCL) and the Russell 2000 Growth Index ETF (IWO) plunging almost 2.5 percent.

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