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By Gunjan Banerji and Will Horner 

Stocks around the world continued a sharp slump Friday as fresh economic data and the viral outbreak in China fanned worries about global growth.

Anxiety swept through stocks, bonds and metals markets as investors dumped equities and reached for traditionally safer assets like Treasurys and gold.

The Dow Jones Industrial Average dropped 508 points, or 1.8%, as losses accelerated midday. The S&P 500 lost 1.5%, and the tech-heavy Nasdaq Composite fell 1.2%.

Market volatility flared up throughout the week, with major U.S. indexes logging big swings both up and down. The S&P 500 had been on one of its longest stretches without a move of more than 1% since 1969, before the calm shattered to start the week. In a dramatic reversal, the broad stock market gauge is on track to record three such moves over the past five days.

The record run for major indexes, earlier propelled by easing trade tensions between the U.S. and China and a strengthening domestic economy, came to a halt. Stock markets in Europe and Asia finished their worst months since August.

"We alleviate one area of uncertainty and we get two more in its place," said Adam Phillips, director of portfolio strategy at wealth management firm E.P. Wealth Advisors.

Mr. Phillips said he has been advising clients to brace for choppy waters ahead in the stock market. "It could get worse before it gets better," he said.

The potential effects of the coronavirus darkened the outlook at a time when many investors had been encouraged by progress on trade between two of the biggest world economies, along with three interest rate cuts by the Federal Reserve.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note edged back below the yield of the three-month bill. The phenomenon, known as a yield-curve inversion, is often interpreted as a warning sign about a recession ahead.

The World Health Organization on Thursday declared the coronavirus -- which has now sickened more than 9,500 people and killed over 200 -- a public-health emergency of international concern. Although the move highlighted the risk the outbreak posed globally, the WHO stopped short of recommending restrictions on travel or trade. Meanwhile, the U.S. saw its first person-to-person transmission of the virus, escalating concerns about its spread.

The growing contagion has roiled markets in recent days as investors attempt to assess whether the virus could weigh on China's economy as businesses are shut, borders closed and flights suspended, while also gauging the outbreak's wider impact.

The outbreak comes as some big manufacturers have exhibited signs of strain, raising other concerns about the economy. Caterpillar, often considered a bellwether for the economy, said Friday it expects demand for its machinery to fall this year, citing global economic uncertainty that crimped sales in the latest quarter. Its shares dropped 2.5% Friday.

Boeing earlier this week reported its first annual loss in more than two decades, as one of its aircraft has been grounded world-wide. And 3M is planning layoffs during a global restructuring.

Meanwhile, new data Friday showed that business activity faltered. One measure, the Chicago Business Barometer, fell to its lowest point in about four years, hitting 42.9 and falling well below expectations. Readings under 50 indicate activity is contracting.

"It's a disappointing number," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. "It's been a tale of two economies."

Although manufacturing data has disappointed recently, the U.S. consumer continues to spend, giving comfort that the decadelong economic expansion could continue.

The University of Michigan's headline index of consumer sentiment hit an eight-month high.

Fresh data released Friday showed household spending rose a seasonally adjusted 0.3% in December from November. Personal income advanced 0.2% last month. The spending figures were in line with economists' expectations, while the personal income number fell short of expectations.

The rocky week for major indexes has been marked by even more explosive moves in individual stocks. The sharply divergent fortunes of some corners of the stock market was on stark display. As manufacturing heavyweights delivered lackluster news, some tech highflyers outperformed the market, soaring to unprecedented heights.

Amazon.com jumped 8.6% after the e-commerce giant's fourth-quarter sales set a record for the holiday period. It is poised to become the fourth U.S. company to close with a $1 trillion market value and close at a record.

Tesla's stock continued to soar after the electric-car maker reported its third consecutive quarter of record vehicle deliveries. Its shares jumped 10% Thursday though they edged lower Friday.

International Business Machines rose about 4.5% after the technology company said Chief Executive Ginni Rometty is stepping down following a challenging eight-year run.

"There was a belief going into earnings season that expectations of tech companies were so high that whatever happened, investors would be disappointed," said Mr. Kreckel. "That hasn't happened."

Elsewhere, new data on major European economies proved to be a disappointment on Friday. France's output shrank in the fourth quarter as strikes and protests against the government's pension plan curtailed business activity. Italy's economy also contracted in the latest quarter, when economists had been expecting output to remain flat. The euro area also grew more slowly than economists had forecast.

The pan-continental Stoxx Europe 600 gauge fell about 1.2% this month, its biggest one-month decline since August 2019. The U.K.'s FTSE 100 index just finished its worst week since October 2018 after the country reported its first two cases of the virus.

The weaker-than-expected European data suggests that any boost to gross-domestic-product growth will take longer to materialize, said Brian O'Reilly, head of investment strategy at the Dublin-based Mediolanum International Funds.

"There was definitely a sense of euphoria that was priced into the market," Mr. O'Reilly said. "But we are not expecting a rebound in global GDP at least until the middle of this year. We think it will just take time for confidence to build."

Stocks in Asia were mixed. The Hang Seng Index had its worst month since August 2019 and exchanges in China remained shut.

The number of people sickened by the new coronavirus in China now exceeds the global total infected with severe acute respiratory syndrome, or SARS, which killed nearly 800 people after emerging from southern China in late 2002 and spreading into 2003.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com and Will Horner at William.Horner@wsj.com

(END) Dow Jones Newswires

January 31, 2020 13:43 ET (18:43 GMT)

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