On Wall Street, the technology-driven Nasdaq Composite Index fell 2.6 percent, heading for its weakest session since March 18. The broader-based S&P 500 fell 1.3 percent, dragged down by tech stocks.
Apple shares fell 4.2%, on track for their biggest drop since October of last year. Facebook, the parent of Google Alphabet, and chipmaker Intel all fell more than 2%.
U.S. Treasury Secretary Janet Yellen warned on Tuesday that interest rates may have to rise to prevent U.S. economic expansion, comments that have exacerbated the selloff in tech stocks.
“Interest rates may have to rise somewhat to make sure our economy does not overheat,” she said at an event hosted by Atlantic magazine.
The European Stoxx 600 index closed down 1.5%, with tech stocks also falling the most. Shares of German software group SAP fell more than 3 percent and Dutch semiconductor equipment maker ASML lost nearly 5 percent of its market value.
The moves came after big tech companies stunned Wall Street with increased sales and profits in the first quarter, which underscored how much they had benefited from consumers staying at home during lockdowns.
Investors “were now coming out of stocks blocked in the short term,” said Didier Rabattu, head of equities at the private bank Lombard Odier, while they were considering “strong economic growth and participating in the reopening of transactions”.
The US economy grew 6.4% in the first quarter of this year, according to data released last week. Non-farm payroll data on Friday is expected to show the U.S. economy added nearly 1 million new jobs in April.
“We have reduced our exposure to the US market and in particular to technology, where corporate results have been strong but valuations are now probably too high,” said Juliette Cohen, strategist at CPR Asset Management.
Investors in U.S. tech companies were also concerned about President Joe Biden’s proposed corporate tax increases, which are expected to hit profits in this industry the hardest, Cohen added.
Cyclical consumer stocks listed on the S&P 500 also fell 1% on Tuesday as investors worried about the effect of rising input costs on commodity-dependent companies.
The price of copper hit its highest level in a decade last week, while a commodity price index compiled by Bloomberg has gained nearly 17% this year. Oil continued its advance on Tuesday, with Brent futures adding 1.9% to $ 68.86 a barrel.
Copper stocks in global warehouses cover “only 3.3 weeks of demand,” said Michael Widmer, commodities strategist at Bank of America.
“The underlying context is so worrying because the global economy is just starting to open up,” he said.
The dollar, measured against a basket of currencies, strengthened 0.4% as investors moved into the safe haven asset while public debt prices also rose.
In debt markets, the 10-year US Treasury yield fell 0.02 percentage points to 1.589%.
Yields on Treasuries rose around 0.9% at the start of the year, but have moderated since March after the US central bank pledged that temporary spikes in inflation would not persuade it not to tighten monetary policy.