Financial markets are navigating a complex landscape shaped by a combination of stronger-than-expected labor data and revised economic growth figures. While bond yields have risen back to earlier levels, the U.S. dollar has continued its upward trend. Equities, meanwhile, remain relatively stable as investors weigh the implications of economic resilience against the backdrop of tightening financial conditions.

Bond Yields Revert to Early-Week Levels

Government bond markets saw modest movement following the latest data releases. The 2-year Treasury yield rose by 3.5 basis points in response to the stronger private employment data and revised GDP figures, landing at 3.90%—right in the middle of the range seen on Tuesday prior to the Job Openings and Labor Turnover Survey (JOLTS) release. The 10-year yield followed suit, climbing 4 basis points, effectively reversing the prior session’s dip and bringing it in line with levels seen just 24 hours earlier.

This reversion suggests the market is less reacting to a change in the trajectory of economic data and more recalibrating from a temporary dip driven by the JOLTS report earlier in the week.

Dollar Gains Momentum

While bond yields returned to form, the U.S. dollar has made more definitive strides. A steady bid for the greenback has been evident throughout the week, and that momentum only intensified following Wednesday’s data. The EUR/USD pair broke below the 1.1500 threshold, marking its lowest level since mid-June. The dollar’s gains reflect a broader market reassessment of U.S. economic strength relative to global peers, particularly as expectations of further Federal Reserve tightening remain plausible in the face of resilient domestic data.

Equities Hold Steady Amid Conflicting Forces

Equity markets, in contrast, have shown little directional bias. High bond yields typically exert downward pressure on stock valuations by increasing the cost of capital and offering more attractive alternatives for investors. However, that negative is being counterbalanced by signs of underlying economic strength, which offer reassurance that corporate earnings and consumer spending can remain robust.

GDP Figures: A Closer Look

The second-quarter GDP numbers offered a nuanced picture of economic momentum. On the surface, the data suggests a solid pace of growth. However, a deeper look reveals that some of this strength may be more statistical than structural. A sharp 35% drop in imports during Q2 reversed the Q1 trend, when a pull-forward in imports had temporarily weakened the GDP print. This reversal mechanically boosts the Q2 headline number without necessarily indicating a genuine surge in domestic demand.

On a year-over-year basis—a more consistent measure of underlying economic performance—GDP growth stood at 2.0% in Q2, matching Q1’s pace. This marks a modest slowdown from the 2.5% seen in Q4 of last year and 2.7% in Q3, pointing to a gradually cooling but still resilient economy.

Markets are digesting a mixed bag of economic indicators with relative composure. Treasury yields are stabilizing after a short-lived dip, the dollar continues to strengthen on firm economic footing, and equities remain range-bound as investors balance the benefits of growth against the headwinds of higher rates. The underlying message is one of cautious optimism—growth is steady but not accelerating, inflation risks persist, and monetary policy remains a key variable moving forward.