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The Olympic Rings in Tokyo.

Takashi Aoyama/Getty Images

Everything went wrong this past week—and yet everything ended up all right for the stock market.

On the surface, it doesn’t look like much happened. The Dow Jones Industrial Average advanced 83.81 points, or 0.2%, to 34,870.16, while the S&P 500 rose 0.4%, to 4369.55, and the Nasdaq Composite gained 0.4%, to 14,701.92. The indexes even managed to finish the week at record highs. It’s exactly the kind of action we’d expect from a holiday-shortened trading week—except that it wasn’t.

The Dow experienced a range of 736.73 points, or 2.2%, as investors briefly freaked out. About what? It was hard to tell, but it seemed to be driven by the Treasury market, where the 10-year note tumbled as low as 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 the market. We sure did. But make no mistake—Covid fears were driving some of the moves on Thursday. The Dow sank more than 400 points after Japan declared a state of emergency and announced there would be no spectators at the Summer Olympics, though it later recovered a solid chunk of those losses.

Even before that decline, a basket of Covid-sensitive stocks had dropped 6.2% during the first week of July, while tech stocks that had performed well during the lockdown gained 3.2%, notes Steve Englander, head of global G-10 FX research at Standard Chartered. The 10-year Treasury yield fell 0.15 percentage point over that period.

The fact that yields and the performance of reopening stocks are moving together makes him worried about the potential for Covid to upend the market, even though the economic impact wouldn’t be as bad as last year’s lockdowns. “The 2020 links between Covid risk and yields were more direct as elevated economic risks from Covid were seen as leading to further central bank stimulus,” Englander writes.

Renewed Covid fears don’t mean the market has to fall, but they’re worth watching. And Covid isn’t the only issue at play. Concerns about peak growth are triggered by nearly every data release. This past week a disappointing ISM services survey—it fell to 60.1 in June from 64 in May, below forecasts for 63.5—seemed to trigger selling on Tuesday. Never mind that a reading above 60 is still very, very strong. Here’s a little secret: There’s a good chance economic growth has peaked, but that doesn’t have to signal the end of a bull market.

Far from it. There have been seven economic expansions since 1970, and the average one lasted 37 quarters past the strongest quarter of gross-domestic-product growth, writes Callie Bost, senior investment strategist at Ally Invest. Only two saw peak growth come during the final 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 favor more growth—even if it has peaked. “It’s typical to see the economy bounce back quickly after a recession as spending and confidence comes back,” Bost writes. “As the cycle ages, that energy can wear off, and growth usually falls into a more normal pace.”

The stock market’s rise likely will too. There will be ups. There will be downs. And there’s nothing wrong with that.

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