* Wal-Mart profit falls as severe winter deters shoppers
* Small-caps decline; Russell 2000 briefly off more than 10 pct from high
* Dow off 1.1 pct; S&P down 1 pct; Nasdaq down 0.7 pct (Updates to afternoon)
By Caroline Valetkevitch
NEW YORK, May 15 (Reuters) - U.S. stocks slumped on Thursday after a drop in small-cap stocks and disappointing results from Wal-Mart.
The Russell 2000 index of small cap stocks was down 0.7 percent after earlier trading in correction territory, down more than 10 percent from its record close of 1,208.65 in early March.
Indexes were off their lows for the day, however, as the small-cap index recovered some ground to outperform the S&P 500. The S&P 500 had briefly traded below technical support, its 50-day moving average, before trimming some losses.
Still, the Russell 2000’s move raised concern about the strength of the broader market, with the Dow and S&P 500 near record highs.
“Either this is a leading market indicator or it could be a one-off where it could be a short-term correction, and that’s yet to be determined. But, as of now, it means the sellers are slowly gaining more control,” said Adam Sarhan, chief executive of Sarhan Capital in New York.
Volume was higher than average, with S&P 500 e-mini futures volume at 1.9 million, surpassing the 1.5 million daily average for the past year. The CBOE volatility index rose 9.5 percent and the spread between the spot VIX and the 3-month VIX tightened to its smallest since April 28.
Wal-Mart Stores Inc shares fell 2.4 percent to $76.81, weighing on both the S&P 500 and Dow. The world’s largest retailer forecast second-quarter profit below analysts’ estimates and reported its smallest growth in quarterly sales in nearly five years.
The Dow Jones industrial average fell 178.23 points or 1.07 percent, to 16,435.74, the S&P 500 lost 18.51 points or 0.98 percent, to 1,870.02 and the Nasdaq Composite dropped 28.18 points or 0.69 percent, to 4,072.45.
IShares 20-year-plus Treasury Bond ETF hit 11-month highs, up 0.7 percent, as U.S. Treasuries rallied.
Adding to bearish views, billionaire hedge fund manager David Tepper sounded cautious late Wednesday, saying he was “nervous” about the stock market but that this was not the time to sell.
Economic data was mixed, though U.S. industrial output fell at its fastest rate in more than 1-1/2 years in April as factory production slumped, tempering hopes for a big jump in economic growth after a winter slowdown.
Among the day’s gainers, Cisco Systems Inc jumped 7.1 percent to $24.43, a day after the network equipment maker posted a shallower-than-expected drop in quarterly revenue. (Editing by Chizu Nomiyama and Nick Zieminski)