US stocks closed sharply lower on Tuesday as big banks warned that equity markets could be headed for a downturn, reflecting mounting concerns over stretched valuations.

All three major US stock indexes slid well into negative territory after the CEOs of Morgan Stanley and Goldman Sachs stoked fears of a potential market bubble, with the S&P 500 having climbed to a series of all-time highs, largely powered by the artificial intelligence boom.

The S&P 500 and the Nasdaq suffered their biggest one-day percentage drop since October 10.

Tech shares weighed particularly heavily on the Nasdaq, with six of the "Magnificent Seven" AI-related momentum stocks losing ground on the day.

The Philadelphia SE Semiconductor index dipped 4.0 percent.

JPMorgan Chase CEO Jamie Dimon warned last month of the heightened risk of a significant stock market correction within the next six months to two years, citing factors including geopolitical tensions.

"Investors seem a little more worried about valuation than they have in a while, at least today," said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

"A lot of these companies' valuations were pretty stretched and their earnings were good, but not great," Carlson added. "And that's a recipe for profit-taking."

The US government shutdown, the result of a congressional impasse, is nearing the record for the longest ever.

The resulting dearth of official government data has led to increased scrutiny of private sources such as ADP's National Employment Report expected on Wednesday.

Comments from Federal Reserve officials are being parsed for clues as to how the data-dependent central bank will forge its monetary policy in the absence of crucial economic indicators.

Local elections for New York's mayor and governors in New Jersey and Virginia will also be closely tracked.

The S&P 500 lost 1.2 percent to 6,771, while the Nasdaq fell 2 percent, to 23,348. The Dow gave up 0.5 percent, to 47,085. (Reuters)