Nasdaq takes a dive as momentum stocks cool

The Nasdaq composite, crushed by big losses suffered by formerly highflying "momentum" stocks, plunged 2.6% Friday, taking some of the froth out of a segment of the market that had been flying high.

The big sell-off, which followed a decent March employment report that suggested the job market would rebound with the spring thaw, prompted fresh talk on Wall Street of whether the long-awaited price correction is underway.

Many of the stocks that were super-hot and super-popular got hit hard again, including Facebook (-4.6%), electric-car maker Tesla (-5.9%) and whiz-bang biotech names with promising drug pipelines. These "story stocks," which have gotten pricey, have suddenly run into a wave of selling by investors opting to lock in profits after big run-ups. Many investors are now searching for stocks sporting better values.

The Nasdaq, which fell 110 points to 4127.73, is down 5.3% from its March 5 high and trading at a fresh two-month low. It is now in negative territory for 2014.

Michael Farr, president of money-management firm Farr, Miller & Washington, says he is closely watching the recent drop, but says he isn't sure yet if the end of the momentum trade will derail the bull market.

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"When you have big moves, big run-ups in speculative stocks and the air starts to come out, it can come out fast," says Farr. "Is this a trigger to a bigger correction? I don't know. We are overdue." Stocks haven't suffered a correction, a drop of 10%, since 2011.

The Dow Jones industrial average and Standard & Poor's 500 index, which both hit intra-day record highs earlier Friday, reversed course, as well, suffering losses of 1% and 1.3%, respectively. The Dow fell 160 points to 16,412.71, and the S&P 500 closed at 1865.09.

A sell-off in the highflying stocks now is better than a continuing melt-up that could end even uglier, says Nick Sargen, chief investment officer at Fort Washington Investment Advisors.

"There! clearly have been some highfliers in the trendy parts of the market like biotech and the Internet," says Sargen. "To see those groups getting whacked, I take comfort in that. Let's not relive the 1999 tech bubble."

Among the high-profile names running into problems Friday:

• Facebook. Facebook shares are now down nearly 22% from their March 11 intra-day peak. The social media darling's CEO, Mark Zuckerberg, earned $3.3 billion in profits cashing in stock options in 2013. Shares fell more than 22% below their 52-week high at one point Friday.

• Tesla. The electric-car maker's nearly 6% drop Friday leaves it down 20% from its recent high and in bear-market territory.

• iShares Nasdaq Biotech ETF. The biotech ETF has cratered another 3.8% Friday, and is 18% below its recent peak.

• Amazon.com. Shares of Jeff Bezos' Internet retail empire fell 3.2%. The stock is down 20.8% from its 52-week high.