By Amrith Ramkumar 

Investors are favoring a few select havens including gold and Treasurys in 2020, fueling outsize gains that represent a warning signal about the global economy and a fresh threat to U.S. stocks.

After climbing for seven consecutive sessions, the price of gold has hit its highest level since early 2013, bringing its advance so far this year to more than 8%. Silver has also surged. Meanwhile, heavy buying of bonds has pushed Treasury yields down near record lows, and the WSJ Dollar Index recently rose to a three-year peak.

Despite those signs of caution, the S&P 500 is still hovering just below its all-time high and is up 20% in the past year. Some analysts have warned for months about the divergence, cautioning that investors aren't guarding enough against the economic downturn feared by precious metals and bond traders. It is unusual for stocks, bonds and gold to rally in tandem as much as they have in the past year.

More recent market swings have also unsettled investors. It is atypical for the dollar and precious metals like gold and silver to rally at the same time because a stronger U.S. currency makes commodities that are sold in dollars more expensive for overseas buyers.

Meanwhile, the spreading coronavirus has limited gains in some traditional havens like the Japanese yen. With the number of cases in the country surging, the Japanese economy is expected to slow further. The Swiss franc also hasn't gotten much traction against the dollar, with the U.S. perceived to be best equipped among major economies to weather a growth slowdown.

The abnormal trend of investors favoring only a few havens illustrates how cautious many are about the world economy. Some analysts say it is only a matter of time before that reticence drives volatility in stocks.

"The only market that doesn't seem to be flashing red is U.S. equities," said Edward Meir, a consultant at brokerage ED&F Man Capital Markets.

After rising to a record Wednesday, the S&P 500 fell 1.4% in the next two sessions after South Korea reported a jump in coronavirus cases and signs of global economic damage mounted. It is up 3.3% this year, extending a bull run that began nearly 11 years ago.

Some analysts say the rally's strength has taught investors to maintain positions in stocks until they believe a recession is imminent. In the past few years alone, major indexes have shaken off several powerful drops to set new records. Still, traders are watching to see if another pullback causes investors to start selling stocks rather than simply buying havens.

Some cracks are already appearing. On Thursday, the Dow Jones Industrial Average dropped nearly 400 points in midday trading in a matter of minutes, without a clear catalyst, before eventually recovering. And some analysts are wary that the heavy flows into safer investments signal less faith in stocks.

"If there is a pronounced selling off of equities, there might not be many buyers to step in," said Shawn Cruz, manager of trader strategy at TD Ameritrade. "You could see significant drops."

Goldman Sachs Group Inc. analysts on Wednesday said in a note that the likelihood was elevated of a stock-market correction, or a pullback of 10% or more, citing the prospect of weak economic and profit figures.

While some investors think the dent to corporate earnings will prove short-lived, the complex effects on global supply chains have made the coronavirus particularly hard to analyze. Some economic indicators have remained resilient, but figures Friday showed a gauge of U.S. business activity fell to its lowest level in more than six years in February.

Tech stalwart Apple Inc. last week became the first major U.S. company to say it will miss sales expectations in the first quarter because of the virus. Other companies including Walmart Inc. aren't yet projecting ahead. Chief Financial Officer Brett Biggs said during the company's Tuesday investor presentation that the retail giant isn't including the virus in its guidance yet "because the situation is still so fluid."

The lack of clarity has prompted some investors to seek shelter in bonds or gold. The yield on the 30-year Treasury note hit a record low Friday. The yield on the benchmark 10-year note, which affects everything from student debt to auto loans, closed the week at its lowest point since early September, dropping to 1.470% from 1.909% at the end of last year. Yields fall as prices rise.

Investors will now have to gauge whether stocks might be starting to reflect the economic concerns that have pushed up havens since last summer.

"It almost feels like a catch-up trade," says Keith Buchanan, portfolio manager at GLOBALT Investments. "We're definitely considering how widespread this could go."

In another sign of worry that the economy will slow down, federal-funds futures used by traders to place bets on interest-rate policy show a 72% chance the Federal Reserve will lower rates at least once by the end of July, up from 30% a month ago. The central bank cut rates three times in the last six months of 2019.

Even though the Fed has signaled that it plans to hold rates steady for now, the anticipation of more cuts underscores the uncertainty gripping markets. That anxiety seemed to rise late last week, with haven gains accelerating after two people who tested positive for the coronavirus died in Iran and South Korea said the number of cases rose nearly sevenfold from the start of the week.

"What shook the market is Korea," said Tai Wong, head of base and precious metals derivatives trading at Bank of Montreal. "We're kind of in uncharted territory."

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

(END) Dow Jones Newswires

February 24, 2020 07:14 ET (12:14 GMT)

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