Have investors swapped fears of surging inflation for worries about stalling global economic growth? Perhaps, but there’s still a lot of optimism about prospects for corporate earnings and the economy in the months ahead.

Those apparent growth fears, however, were holding sway on Thursday. An unrelenting rally in longer-term U.S.Treasury prices continued to hammer down yields, sending the 10-year rate

to a five-month low below 1.25%. As investors sought safety in the long end of the bond market, stocks tumbled, with the Dow Jones Industrial Average

down more than 500 points at its session low.

Yields and stocks have trimmed their fall Thursday afternoon, but remain down, with the 10-year yield off 2 basis points at 1.30%. The Dow was down around 300 points, or 0.9%. After closing at records Wednesday, the S&P 500

declined 0.8% and the Nasdaq Composite

shed 0.5%.

A debate has raged among investors and analysts over the explanation for the fall in Treasury yields, which seem to be driving moves across financial markets. But take them all together, and they point to a general sense of unease about what will power a stock market that’s hit a string of record highs amid what many expect to be peak economic growth.

“Our working theory is that we’re in the middle of a modest global growth scare…,” wrote Nicholas Colas, co-founder of DataTrek Research, in a Thursday note.

Read: Why is the 10-year Treasury yield plunging to the lowest since February? Government debt is Wall Street’s new meme asset, says investor

Before Thursday’s selloff, which saw large-cap growth stocks get clobbered alongside more cyclically oriented stocks, the worries had appeared largely invisible to the S&P 500 index because of its high-quality growth/big tech overweight, Colas said. But they were apparent when looking at other phenomenon that have taken place since June 1, including a higher U.S. dollar, a fall of more than 4% for the MSCI Emerging Markets index
and a 0.5% decline for the small-cap Russell 2000

And yields on foreign government bonds have also fallen, with the 10-year German bund yield

falling to -0.3% through Wednesday from -0.11%, while the Japanese 10-year yield

dropped to 0.04% from 0.09% at the end of May.

There are individual story lines behind all those moves, Colas acknowledged, including China’s crackdown on tech companies, the Russell 2000’s overstretched rally earlier this year, and concerns about the spread of the delta variant of the coronavirus that causes COVID-19 could trigger new lockdowns.

See: What to expect if ‘peak everything’ already has happened and markets feel the force of gravity again

Combine the narratives, however, and it produces an environment “where investors might rationally say, ‘I’ll park some capital in Treasurys until things become more clear,’” Colas said.

He’s among the optimists, arguing that while yields could continue to fall in coming weeks, it’s too early to write the obituary for the global economic recovery. Instead, this appears to be a moment like those in past cycles where markets “temporarily stop and reassess.”

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