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The Olympic rings in Tokyo.

Takashi Aoyama / Getty Images

Everything went wrong last week and yet everything has been going well for the stock market.

On the surface, not much seems to have happened. the

Dow Jones Industrial Average

rose 83.81 points, or 0.2%, to 34,870.16, while the

S&P 500

increased 0.4% to 4,369.55, and the

Nasdaq Composite

gained 0.4% to 14,701.92. The indices even managed to end the week on records. This is exactly the kind of action we would expect from a shortened trading week, except it wasn’t.

The Dow Jones traded at 736.73 points, or 2.2%, as investors briefly panicked. About what? It was hard to say, but it seemed to be pulled by the Treasury market, where the 10-year note fell to 1.2455% on Thursday from 1.434% on July 2, before closing at 1.354%.

Raise your hand if you thought Covid-19 had lost the ability to shake up the market. We certainly did. But make no mistake, Covid fears were behind some of Thursday’s moves. The Dow Jones lost more than 400 points after Japan declared a state of emergency and announced that there would be no spectators at the Summer Olympics, although it subsequently recovered a much of these losses.

Even before that drop, a basket of Covid-sensitive stocks had fallen 6.2% in the first week of July, while tech stocks that performed well during the lockdown gained 3.2%, Steve notes. Englander, Global G-10 FX Research Manager at Standard Chartered. The 10-year Treasury yield fell 0.15 percentage point over this period.

The fact that the yields and performance of reopening stocks move together makes him worried about Covid’s potential to upend the market, even if the economic impact would not be as severe as last year’s lockdowns. “The 2020 links between Covid risk and returns were more direct, as high economic risks from Covid were seen as leading to further central bank stimulus,” Englander writes.

Renewed Covid fears don’t mean the market needs to go down, but they are worth watching. And Covid isn’t the only issue at play. Concerns about spike in growth are triggered by almost every data release. Last week, a disappointing ISM services survey – it fell to 60.1 in June from 64 in May, below expectations of 63.5 – appeared to trigger the sell-off on Tuesday. Never mind that a reading above 60 is still very, very strong. Here’s a little secret: There’s a good chance that economic growth has peaked, but that doesn’t necessarily mean the end of a bull market.

Far from there. There have been seven economic expansions since 1970, and the average lasted 37 quarters after the highest quarter of gross domestic product growth, writes Callie Bost, senior investment strategist at Ally Invest. Only two peaked in the last year of the expansion, and one came during the 1980-81 recovery, which lasted only 12 months.

A recurrence is always a possibility, but the odds are in favor of increased growth, even if it has peaked. “It’s typical to see the economy rebound quickly after a recession as spending and confidence return,” Bost writes. “As the cycle ages, this energy can wane and growth generally falls at a more normal rate.”

So too will the rise in the stock market. There will be ups. There will be lows. And there is nothing wrong with that.

Write to Ben Levisohn at Ben.Levisohn@barrons.com