Stocks struggled Thursday as investors dumped risk assets and concerns mounted over the outlook for the U.S. economy ahead of Friday's keynote labor report.

The S&P 500 dipped 0.3% to end at 5,503.41, while the Dow Jones Industrial Average lost 219.22 points, or 0.54%, to settle at 40,755.75. The Nasdaq Composite gained 0.25% to finish at 17,127.66, after rising as much as 1.2% earlier in the session.

"We're right in the middle of yet another mini growth scare," said Arun Sai, senior multi-asset strategist at Pictet Asset Management.

Fresh labor market data Thursday sent mixed signals about the health of the U.S. economy as questions linger over whether the Federal Reserve is behind the curve on rate cuts. Private payrolls data showed the weakest growth since 2021, heightening fears of a slowing labor market. However, weekly claims for unemployment benefits declined from the previous week.

The market has shown hypersensitivity to potential growth scares in recent weeks, including Tuesday's sell-off on the heels of weak manufacturing data. That puts heightened scrutiny on labor market data, with all eyes on Friday's August nonfarm payrolls report. A weak July report released last month spurred recession fears and a raft of volatility in August.

"It's a very, very narrow band," said Mark Malek, chief investment officer at Siebert Financial. "If we're significantly out of what would be expectation tomorrow, we could see pretty big moves in either direction. If we see any deviation, we expect more volatility."

In other news, Tesla popped 4.9% after the electric vehicle maker said it plans to launch its full self-driving software in Europe and China early next year. Frontier Communications dropped 9.5% after Verizon said it would buy the company in a $20 billion deal valuing it below Wednesday's close. Verizon slipped 0.4%.

Thursday's moves come after the S&P 500 and Nasdaq Composite each closed lower for the second straight session. The Dow squeezed out a small gain. All three averages are down for the week.