By Sinéad Carew and Ankika Biswas
(Reuters) - Wall Street's three major averages tumbled on Thursday with the technology-heavy Nasdaq leading declines after data showing a resilient economy fueled worries that the Federal Reserve would stick to its aggressive tightening path for longer.
Micron Technology Inc (NASDAQ:MU)'s glum forecast added to a downbeat mood and caused the semiconductor index to fall 5.7%, sharply underperforming the broader market.
Losses in rate-sensitive growth stocks saw technology and consumer discretionary indexes among the biggest percentage losers and providing the biggest drags to S&P 500 from the benchmark's 11 major industry sectors.
Apple Inc (NASDAQ:AAPL) and Microsoft Corp (NASDAQ:MSFT), both down around 4%, were among the biggest drags on the technology sector along with chip makers such as Nvidia which was down more than 9%. Two-year Treasury yields regained steam on prolonged rate hike expectations.
The final estimate of the third-quarter U.S. gross domestic product was for 3.2% annualized growth, above the previous estimate of 2.9%.
Meanwhile, the Labor Department said filings for state unemployment benefits increased to 216,000 last week but was below economist estimates for 222,000.
"Strong economic data, especially strong labor market data, keeps the Fed's foot on the economic brake," said Liz Ann Sonders, Chief Investment Strategist at Charles Schwab (NYSE:SCHW).
"The Fed doesn't just want or need to see lower inflation. They believe that, in order to bring it down and keep it down sustainably, you're going to need to see more weakness in the labor market which would come with more weakness in the economy."
Recession fears on the back of the Fed's prolonged interest rate hiking cycle have weighed heavily on equities this year, with the benchmark S&P 500 on track for an annual decline of 21%, its biggest since the 2008 financial crisis.
But it would be better for the market if economic weakness "hits sooner rather than later because then it gives the Fed the ability to pause," according to Sonders.
"You increase the risk of an overshoot if they continue to be aggressive because then the hit is bigger," she said.
By 2:07PM EST, the Dow Jones Industrial Average fell 728.13 points, or 2.18%, to 32,648.35, the S&P 500 lost 104.63 points, or 2.70%, to 3,773.81 and the Nasdaq Composite dropped 361.23 points, or 3.37%, to 10,348.14.
The Philadelphia SE Semiconductor index was on track for its biggest single-day percentage drop in two months. While Micron's equipment supplier Lam Research (NASDAQ:LRCX) lead chip declines with a roughly 10% drop.
Tesla (NASDAQ:TSLA) Inc plunged 9% after the electric-vehicle maker doubled its discount offering on models in the United States this month, amid concerns over softening demand.
CarMax Inc (NYSE:KMX) slid 5% after the used-vehicles retailer paused share buybacks following an 86% quarterly profit plunge.
AMC Entertainment Holdings Inc slumped 15% after the world's largest cinema chain said it would raise $110 million through a preferred stock sale.
Declining issues outnumbered advancing ones on the NYSE by a 7.10-to-1 ratio; on Nasdaq, a 3.05-to-1 ratio favored decliners.
The S&P 500 posted 1 new 52-week highs and 23 new lows; the Nasdaq Composite recorded 66 new highs and 372 new lows.