NEW YORK — Stocks tumbled on Thursday after fresh data signaled that the labor market remains piping hot, heightening concerns that the Federal Reserve will raise interest rates for longer than expected.

ADP’s National Employment Report, produced in a collaboration with the Stanford Digital Economy Lab, showed that the private sector added 497,000 jobs last month, far exceeding economists’ expectations for 228,000 jobs and ADP’s May total of 267,000 hires.

While ADP’s tabulations don’t always correlate with the official federal jobs report, it’s sometimes viewed as a proxy for overall hiring activity. And by that measure, Thursday’s blockbuster jump is yet another indicator that when the June jobs report lands on Friday, it’s all but certain to show that the US labor market has added jobs for 30 consecutive months.

Jobless claims increase; report says US added nearly 500,000 jobs in June

While the current employment growth pales in comparison to the labor market expansion seen between 2010 and 2019, when there were a record 100 months of job growth, it’s the strength of this current streak that continues to defy expectations: The above-average gains come at a time of elevated, but waning, inflation as well as a historic spike in interest rates resulting from a Federal Reserve counteroffensive to rising prices.

The 1.57 million jobs added so far this year mark the 10th highest January-to-May total in records that go back to 1939, Bureau of Labor Statistics data shows. And this year’s monthly average of 314,000 net job gains far exceeds what was seen before the pandemic, including during that 100-month stretch post-Great Recession.

Still, some economists believe that it’s only a matter of time before the weight of those and other external factors will be too much for employers to handle.

Sarah House, senior economist at Wells Fargo, said she’s expecting a “gradual cooling” to wash over the labor market.

“The jobs market is not collapsing,” she said. “But as we get further away from the [pandemic] reopening, the impact of tighter monetary policy increasingly bites. We do look for the job gains to continue to ease on trend.”

The Dow dropped 453 points, or 1.3%. The S&P 500 fell 1.1% and the Nasdaq Composite slid 1.3%.

The 2-year Treasury yield reached as high as 5.113% early Thursday morning, touching its highest level since June 2007. The 2-year was last trading at 5.065%, its highest level since March 2023.

The 10-year Treasury yield rose above 4%. That has investors worried since crossing that threshold can lead to a tighter liquidity scenario and affect areas of the economy like mortgage rates, which tend to track the 10-year yield, said Ivana Delevska, founder and chief investment officer at Spear Invest.

“Every time you see it cross 4%, people are looking for something in the system to break,” said Delevska.

Bank stocks, which were hammered earlier this year after the collapses of Silicon Valley Bank, Signature Bank and First Republic, also fell Thursday. JPMorgan Chase fell 1.8%, Wells Fargo slid 2.2% and Citigroup declined 3.2%.

PacWest Bank slipped 8.6%, New York Community Bank fell 1.7% and KeyCorp slipped about 3%.

The pan-European Stoxx 600 index fell about 2.4% as investors parsed the strong US labor data.

US private sector businesses added an estimated 497,000 jobs, according to payroll processor ADP’s latest National Employment Report released Thursday. That’s significantly higher than the 220,000 jobs economists predicted, according to Refinitiv.

Separately, weekly jobless claims data from the Department of Labor rose more than expected at the end of June, but remain well below pre-pandemic levels.

The labor data further worried investors already on edge about the Fed’s hawkish stance against inflation after the June meeting minutes released Wednesday reiterated both that more hikes are likely coming and that the central bank predicts a possible mild recession later this year.

While a strong jobs market despite the Fed’s aggressive rate-hike campaign appears to be a positive economic sign, it is being seen negatively by the markets because the Fed may continue to raise interest rates. It also suggests that pressures keeping inflation high, such as consumer spending, are persisting.

“We need to start seeing some bad news,” said Matt Dmytryszyn, chief investment officer at Telemus.

Oil prices fell as Wall Street grew fearful about the health of the economy. West Texas Intermediate, the US benchmark, fell to roughly $71 a barrel.

Investors are looking to the government’s June jobs report due Friday for more insight into the state of the labor market. Economists project an addition of 225,000 jobs in June and that the unemployment rate will fall to 3.6%, according to Refinitiv.

The VIX, known as Wall Street’s fear gauge, surged about 17.2% to roughly 17.

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