By Stan Choe

Stocks are falling Thursday after reports suggested the U.S. job market remains much more resilient than expected.

The S&P 500 was 1% lower in early trading. The Dow Jones Industrial Average was down 354 points, or 1%, at 33,934, as of 9:43 a.m. Eastern time, and the Nasdaq composite was 1.1% lower.

While a sturdy labor market keeps the economy out of a long-expected 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 that 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.

More reports on the economy will arrive later in the morning, including one showing how many job openings employers advertised in May and the latest monthly update on the health of the services sector.

Thursday’s pullback for Wall Street follows a big rally through the first half of the year built amid relief that the economy has remained surprisingly resilient 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 in order 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.

But inflation has also slowed since peaking last summer. The hope on Wall Street had been that just one or two more rate hikes would be on the way this year before the Fed could begin cutting rates in the first part of next year.

But Thursday’s surprisingly hot data on the job market could keep the Fed inclined to keep rates high for even longer than expected.

Yields jumped in the bond market on such expectations. The yield on the 10-year Treasury rose to 4.02% 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 5.06% 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 were sliding to some of the sharpest losses amid worries about higher interest rates. Zions Bancorp fell 4.4%, and Comerca dropped 4.4%. PacWest Bancorp slid 6.2%

Big Tech stocks also tend to be some of the hardest hit by high interest rates, along with other high-growth stocks. A 1.6% drop for Amazon and 1.5% fall for Nvidia were two of the heaviest weights on the S&P 500.

Both remain comfortably up for the year so far, though, with Nvidia still up 185%.

Meta Platforms, the parent company of Facebook, Instagram and WhatsApp, was an outlier. It added 0.5% after unveiling its new app Threads, a rival to Twitter, which has had a bumpy ride under new owner Elon Musk.

Stock markets fell sharply abroad.

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 2.6% and Germany's DAX lost 1.9%.

AP Business Writers Elaine Kurtenbach and Matt Ott contributed.

Updated with the latest details.

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