By Akane Otani and Anna Hirtenstein 

The Dow Jones Industrial Average tumbled more than 550 points Thursday as a wave of selling that began in the technology sector took down swaths of the market.

Stocks' momentum has faltered the past week as investors have faced a sharp and swift rise in bond yields. The yield on the benchmark 10-year Treasury note marked its biggest one-day advance since November and settled at its highest level in a year.

Money managers have broadly attributed the shift to bets on the economy picking up, something that should be a boon to corporate profits. But the swiftness with which yields have moved has also had another effect: It has tempered enthusiasm for more richly valued, risky parts of the market.

Investors rushed out of some of the hottest stocks of the year, sending shares of companies like Apple, Alphabet and Netflix down more than 2% apiece. Tesla shares dropped more than 8%.

While relatively cheap corners of the market appeared to hold up well at first, with bank stocks and energy producers initially higher for the day, those gains dwindled in afternoon trading, leaving few places for investors to shelter.

The Dow dropped 559.85 points, or 1.8%, to 31402.01, pulling back from Wednesday's all-time high. The S&P 500 shed 96.09 points, or 2.4%, to 3829.34, and the Nasdaq Composite lost 478.53 points, or 3.5%, to 13119.43, notching its biggest one-day pullback since October.

"The market is jittery. The bond yields' rising is putting equities, especially growth stocks, under pressure," said Sebastien Galy, senior macro strategist at Nordea Asset Management. "There is a bit of a risk reduction broadly."

Rising bond yields don't always auger poorly for stocks. In fact, many investors are betting that a sweeping fiscal stimulus package from the Biden administration, coupled with increasing vaccinations, will help corporate profits across sectors improve in the second half of the year. Roughly 91% of fund managers surveyed by Bank of America believe the economy will strengthen this year, the highest share on record since the firm began surveying investors in the 1990s.

Labor Department data released Thursday showed the number of Americans applying for unemployment benefits fell sharply last week.

And many contend that the recent weakness in technology shares has been driven by money managers taking some risk off of the table after a long run--not necessarily investors giving up wholesale on the sector. Even after Thursday's declines, for instance, Amazon.com and Netflix are up more than 50% over the past 12 months, more than doubling the S&P 500's gain over that time.

If the sustained rise in bond yields results in any long-lasting change, many believe it will likely be that investors rethink the balance in their portfolios between fast-growing technology companies and more cheaply-valued sectors that have largely underperformed over the past decade.

"It is a change of leadership," said Sophie Chardon, cross asset strategist at Lombard Odier, who added that banks and oil producers look particularly ripe to benefit from rising rates and growth. The KBW Nasdaq Bank Index of lenders initially rose Thursday before ending down 2.7%.

As the broader market tumbled, one group bucked the trend: "meme stocks, " which have surged in popularity among individual investors this year.

In a wave of volatility reminiscent of last month's rally, GameStop jumped $17.02, or 19%, to $108.73, while AMC Entertainment initially rose before trading down 80 cents, or 8.8%, to $8.29. The two stocks had soared in overnight trading.

Many on Wall Street scrambled to identify a catalyst for the sudden moves. Market observers said the run-up appeared to be the result of renewed interest from investors that was likely exacerbated by activity in the options market.

The moves show "there is still liquidity and a lot of access to speculative bets," Ms. Chardon said. "We have to be prepared to live with this kind of targeted bubble, but I wouldn't see it as a threat to the global equity market."

Meanwhile, selling pressure in the bond markets picked up pace. The yield on the 10-year Treasury note rose to 1.513% from 1.388% Wednesday.

Overseas, the pan-continental Stoxx Europe 600 edged down 0.4%. Shares of beer maker Anheuser-Busch InBev fell 5.6% after its fourth-quarter profit came in below estimates.

Investors also sold European government bonds, sending yields higher. The yield on French 10-year bonds, which moves inversely to the price, ticked up above zero for the first time since June and reached as high as 0.024%.

In Asia, most major benchmarks finished the day up. The Shanghai Composite Index added 0.6%, snapping a three-day losing streak, and Hong Kong's Hang Seng Index climbed 1.2%.

South Korea's Kospi Index rallied 3.5% after its central bank kept interest rates at historic lows, citing a need to continue supporting the country's economy.

Write to Akane Otani at akane.otani@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

(END) Dow Jones Newswires

February 25, 2021 17:19 ET (22:19 GMT)

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