The S&P 500 was 1.3% lower in morning trading. The Dow Jones Industrial Average was down 446 points, or 1.3%, at 33,842, as of 10:25 a.m. Eastern time, and the Nasdaq composite was 1.4% lower.

While a sturdy labor market keeps the economy out of a long-feared recession, it could also push the Federal Reserve to keep interest rates higher for longer in its campaign to defeat high inflation. That in turn could mean more pressure down the line on the economy and financial markets.

A report from ADP Research Institute suggested hiring by private employers was much stronger last month than economists expected, with nearly twice as many jobs created than forecast.

The ADP report can be volatile and “isn’t necessarily a good predictor of the monthly jobs report” that is more comprehensive and due from the U.S. government on Friday, said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office.

But it also paired with a separate report showing the number of U.S. workers applying for unemployment last week remains low relative to history, even if it was a bit higher than expected.

Other reports on Thursday offered a nuanced picture. One from the U.S. government said employers advertised fewer job openings in May than expected. That could mean less upward pressure on inflation, though the data also showed more people quit their jobs. That could be a signal of a strong job market.

A separate report from the Institute for Supply Management said growth in U.S. services industries remains hot and accelerated in June, with strength stretching from arts, entertainment and recreation to construction. On the plus side for investors, it also showed prices paid by services companies are growing at a slower rate, which could be an encouraging signal for inflation.

Thursday’s pullback for Wall Street follows a big 16% rally for the S&P 500 in the first half of the year built amid relief that the economy has remained solid despite much higher interest rates.

The Federal Reserve has raised its federal funds rate by a mammoth 5 percentage points from virtually zero early last year to smother the worst inflation in decades. High interest rates work by slowing the entire economy, and unanticipated cracks often appear in areas of the economy under the pressure.

The Fed’s breakneck pace over the last 16 months has already helped caused several failures in the U.S. banking system, as well as hits to the housing market and other corners of the economy. The hope on Wall Street had been that slowing inflation would mean the Fed would hike rates just one or two more times before cutting them early next year.

Thursday’s surprisingly hot data could push the Fed to keep rates high for longer than previously expected.

Yields jumped in the bond market on such expectations. The yield on the 10-year Treasury rose to 4.05% from 3.94% late Wednesday. It helps set rates for mortgages and other important loans.

The two-year Treasury yield, which moves more on expectations for the Fed, leaped to 5.07% from 4.95%. It’s back to where it was in early March, before the failures of Silicon Valley Bank and other banks rattled confidence across financial markets.

On Wall Street, bank stocks slid to some of the sharpest losses amid worries about higher interest rates. Comerica dropped 4.7%, PacWest Bancorp slid 8.7% and KeyCorp fell 3.9%.

Big tech stocks also tend to be some of the hardest hit by high interest rates, along with other high-growth stocks. A 1.7% drop for Amazon and 2.8% fall for Tesla were two of the heaviest weights on the S&P 500.

JetBlue Airways tumbled 5.7% after it said it will end a partnership with American Airlines in the northeastern United States after losing a court fight over the deal, as it focuses instead on salvaging its proposed purchase of Spirit Airlines. American Airlines fell 2.7%.

Meta Platforms, the parent company of Facebook, Instagram and WhatsApp, was an outlier. It added 0.3% after unveiling its new app Threads, a rival to Twitter, which has had a bumpy ride under new owner Elon Musk.

Stock markets abroad also fell sharply.

China’s market has been under particular pressure recently as the recovery for the world’s second-largest economy sputters following the removal of anti-COVID restrictions. Tensions between China and the United States have also weighed on the market, and U.S. Treasury Secretary Janet Yellen visited China Thursday attempting to improve relations.

Hong Kong’s Hang Seng index dropped 3%, partly due to heavy selling of Chinese banks shares after Goldman Sachs downgraded them, citing concerns about the slowing economy and lenders’ exposures to debt. Stocks in Shanghai fell 0.5%.

Japan’s Nikkei 225 dropped 1.7% after being one of the world’s stars through the first half of the year.

In Europe, France’s CAC 40 tumbled 2.9% and Germany’s DAX lost 2.2%.

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AP Business Writers Elaine Kurtenbach and Matt Ott contributed.