By Gunjan Banerji 

Investors dumped stocks and flocked to traditionally safer assets like government bonds and gold this week on escalating worries that the coronavirus epidemic would crimp global growth.

The yield on the benchmark 10-year U.S. Treasury note touched its lowest level since September on Friday, settling at 1.470% after earlier approaching the all-time low of 1.366% from 2016. Yields on even longer-dated Treasurys fell to a record low. Gold prices, meanwhile, climbed for the seventh consecutive session to a seven-year high and extended their gains for the year to 8.2%.

The moves in bonds and gold suggest investors are fearful about the potential of an economic slowdown. But despite declining this week, the S&P 500 is sitting within 1.4% of its record and set a new high as recently as Wednesday.

The mixed signals across markets highlight how tough investors are finding it to assess the damage that the coronavirus will have on economic growth as the epidemic disrupts consumer spending, manufacturing and supply chains around the world.

"One's telling you that things are great in the world. The other market is telling you that things are not great in the world," said Giorgio Caputo, a portfolio manager at J O Hambro Capital Management, referring to the disconnect between stocks and bonds. "One market is going to be right."

The S&P 500 dropped 35.48 points, or 1.1%, Friday to 3337.75, while the Dow Jones Industrial Average shed 227.57 points, or 0.8%, to 28992.41. The technology-laden Nasdaq Composite fell 174.37 points, or 1.8%, to 9576.59. All three indexes suffered declines of at least 1.2% for the week but have posted double-digit gains over the past year and set repeated highs in 2020.

Even now in the midst of the epidemic, few economists are calling for an imminent recession, and many investors are wary of calling it quits on a decadelong bull run in stocks. The Federal Reserve's three interest-rate cuts last year have also boosted optimism that the central bank can help buoy the current expansion. Recession fears came to the forefront last year, only to subside shortly after, helping the S&P 500 finish its best year since 2013 and highlighting the challenge many investors face in trying to time the market.

In one sign of the tug-of-war across financial markets, the two best-performing sectors in the S&P 500 this year have been technology and utilities. That's unusual because the two groups often move in opposite directions -- tech stocks tend to rally when investors feel confident taking on riskier investments, while utilities tend to advance when investors grow more uneasy about the economic outlook.

Markets have swung in recent weeks based on the number of new coronavirus cases that have emerged. Unlike corporate earnings or cut-and-dry economic data, the social and commercial implications of the virus can be tough to pinpoint, leaving investors uneasy about the depth and length of its ramifications.

Fears that the domestic economy would tip into a recession had ebbed earlier this year as the U.S. and China appeared to reach a trade truce. Since then, lackluster economic data and the uncertainty about the impact of the virus have clouded the outlook for growth, sending investors into assets they think will perform well in times of uncertainty.

The concurrent gains in stocks and haven investments this year underscore the jitters that have rattled markets. Typically, investors ditch haven assets like gold and government bonds as stocks crest to fresh highs. This year, they have bought risky and safe assets alike as they have navigated a murky economic outlook.

"It's absolutely unusual from a longer-term historical perspective," said Katrina Lamb, head of investment strategy and research at MV Financial. "There's a concern in terms of wondering if we may be heading into a stretch of trouble after this very long, gentle, benign rally."

Cracks in the growth story dented some of investors' confidence this week. Apple on Monday became the first major U.S. company to say that it won't meet its revenue projections for the current quarter because of the coronavirus, warning the epidemic limited iPhone production and crimped demand for its products in China. Apple shares dropped 3.7% this week.

Procter & Gamble followed Thursday, saying the virus will have a material impact on its sales and earnings for the current quarter because of weaker store traffic in China and disruptions to its supply chain. Its shares ended the week 0.4% higher.

Lackluster economic data added to those concerns. IHS Markit's flash reading for an economic indicator measuring manufacturing and services business activity fell Friday to its lowest level in more than six years. Additionally, new data showed that sales of previously owned U.S. homes sputtered in January. Existing-home sales decreased 1.3% in January from December.

The manufacturing data drove government-bond yields sharply lower. The yield on the 10-year Treasury note also traded below the three-month yield this week as investors sought longer-dated government bonds as a safe haven asset. Gold prices rose 3.9% this week.

The anxiety in the bond and precious-metals markets could eventually trickle into stocks. Goldman Sachs Group Inc. analysts warned in a research note this week that "the risks of a correction are high," referring to the chance of a pullback of 10% or more among stock indexes. The analysts also cautioned that equity investors may be too upbeat about corporations' ability to withstand the epidemic.

Other investors are more optimistic and say they still expect bigger gains ahead for stocks, particularly among shares of tech companies, which have outperformed the broader market for much of the bull market.

"People are desperately looking for organic growth," said Dev Kantesaria, founder of Valley Forge Capital Management, who says he's optimistic about the prospects for software companies. "High-growth stocks should prosper."

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

February 21, 2020 18:33 ET (23:33 GMT)