By Will Horner and Xie Yu 

U.S. stocks and global indexes fell Tuesday after concerns about rising inflation resurfaced, prompting a selloff in highflying technology stocks.

The S&P 500 dropped 1.3% after the opening bell, a day after the broad market index declined 1% from its record closing level. The Nasdaq Composite plummeted 2.2%, and the Dow Jones Industrial Average fell 0.9%.

Investors are betting that inflation is likely to climb steeply in coming months, driven by pent-up spending as well as supply bottlenecks and a leap in commodity prices. A sharp and sustained jump in inflation would erode returns on fixed-income assets and stocks whose valuations rely on future earnings. Some money managers are concerned that it may also prompt the Federal Reserve to pare back its easy money policies sooner than anticipated.

"Inflation is an issue that is on everyone's minds right now, and it is injecting a lot of uncertainty," said Peter Langas, chief portfolio strategist at Bessemer Trust. "The question is, how does the Fed react to that?"

Tech companies are bearing the brunt of inflation concerns this year. Growth stocks led the market's steep rally since last spring. Investors are increasingly worried that their high valuations may not be justified if inflation crimps the value of future earnings. This week, those concerns have spilled over to other sectors as well, leading to a broader selloff.

"When inflation is rising quite rapidly and there is nothing around to contain it, that is when equities don't tend to perform well," said Seema Shah, chief strategist at Principal Global Investors. "For the last 10 to 20 years, inflation hasn't been a concern for investors and so, if you look at portfolios, they are not positioned for inflation risks."

Ahead of the opening bell, market heavyweights Apple, Amazon.com, Google parent Alphabet and Facebook retreated roughly 2% or more. Other large tech companies were also under pressure: Tesla fell almost 8% while Twitter dropped 5% and Snap fell 6%.

Cathie Wood's ARK Innovation exchange-traded fund fell 4%, adding to a more than 5% drop on Monday, as the fund's holdings slipped.

Shares in Palantir Technologies dropped over 10% premarket after the data-analysis company posted a first-quarter loss. Novavax shares slumped about 13% premarket after the company said it had delayed plans to seek regulatory clearance for its Covid-19 vaccine.

In bond markets, the yield on the 10-year U.S. Treasury note edged up to 1.617%, from 1.601% on Monday, marking its third consecutive trading day of gains. Yields rise as prices fall.

Comments Tuesday by John Williams, the president of the Federal Reserve Bank of New York, and Lael Brainard, a member of the Fed's board of governors, may offer fresh insights on how they view inflationary pressures and the course of U.S. interest rates. The Fed, under Chairman Jerome Powell, has stressed it won't be swayed by one-off price increases driven by economic reopening.

In commodities, Brent crude, the international energy benchmark, fell 1.2% to $67.48 a barrel.

Overseas, the pan-continental Stoxx Europe 600 dropped 2.4%.

Government bonds in Europe sold off as inflation concerns weighed on markets in the region. The benchmark 10-year German bund yield rose to minus 0.163%, from minus 0.213% on Monday.

In Hong Kong, the Hang Seng Index fell 2% by the close of trading. Japan's Nikkei 225 slumped over 3%, while South Korea's Kospi index retreated 1.2%.

Asian markets followed U.S. indexes lower on building inflation concerns, said Grace Tam, chief investment adviser for BNP Paribas Wealth Management in Hong Kong. Those worries were exacerbated by Chinese regulators' tougher stance toward its tech giants, she said. "The overall sentiment on Chinese tech firms has been weak."

Fresh data showed that factory-gate prices in China jumped last month by the most in 3 1/2 years, adding to concerns about inflationary pressures spreading globally.

Write to Will Horner at William.Horner@wsj.com and Xie Yu at Yu.Xie@wsj.com

 

(END) Dow Jones Newswires

May 11, 2021 09:47 ET (13:47 GMT)

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