By Lewis Krauskopf

NEW YORK (Reuters) – Geopolitical worries are clouding the outlook for U.S. stocks, even as Russia’s invasion of Ukraine moderates expectations for how aggressively the Federal Reserve will tighten monetary policy in coming months.

On Friday, concerns about the conflict were weighing on the index as it slowed its rally which saw it climb 5.2% from the Feb. 24 intraday high.

The see-saw moves come as investor hopes that the Fed may raise rates less severely than anticipated vied with worries about inflation and higher commodity prices, stoked by sanctions against Russia, one of the world’s biggest commodity exporters.

Investors are now essentially pricing out the possibility of a 50 basis point rate rise in March. This is a relief for technology stocks and growth stock that have been beaten down in recent weeks in anticipation of Fed tightening. Adobe shares (NASDAQ:), which is a software company, saw a 5% increase in value, and Microsoft (NASDAQ;) was up 3%.

Expectations for a lower Fed and lower average yields have buoyed the stock market. “The threat of higher interest rate has diminished somewhat,” stated Brad Neuman (director of Alger’s market strategy).

Below the surface, there has been evidence of the impact of lower yields. Since the day before Russia launched its invasion last week, the S&P 500 growth index, replete with longer-duration stocks heavily pressured by higher yields, has climbed 2.6% against a 2.3% rise for the counterpart value index. The spread narrowed as Friday’s broad market collapsed.

Geopolitical worries have pushed oil prices higher, prompting concerns of slowing growth and high inflation long-term. While oil prices reached $115/barrel this week, they were at their highest point since 2008 and other commodities like wheat saw an increase.

Neuman stated that although the Fed may be more aggressive after Russia invades Ukraine, the Fed’s problem has not diminished. It has actually been worsened.

Next week, investors will pay attention to data about U.S. Inflation due Thursday. The January increase in consumer prices was the fastest in almost four decades.

However, for the moment, U.S. Treasury yields have stalled, moving in opposite directions to bond prices. To start the year, the yield on the 10-year Treasury bond climbed more than 50 basis points to 2.255%. However, it has since fallen back to 1.74%.

Strategists Citigroup (NYSE:) On Thursday, the NYSE upgraded its rating for U.S. Equities from overweight to overweight. Tech stocks are heavily weighted and they were described as “classic” growth trades.

Citi strategists noted in a note, “Growth stocks have been hurt by rising real returns but should be able to benefit as they reverse.”

Conversely, yield-sensitive financial stocks have struggled, with the S&P 500 banks index down nearly 8% since last week.

Truist Advisory Services has lowered its rating for the financials sector from “neutral” to “neutral”, and upgraded its ratings for two defensive groups: consumer staples to overweight, utilities to neutral.

Keith Lerner, Truist’s chief investment officer, stated, “Because it is happening overseas…it complicates the world picture.” “The global economy will be somewhat slower, capping rates, and by itself that is a negative for financials.”

Some investors are wary of stocks rebound. Some investors are wary of the rebound in stock prices. Wells Fargo (NYSE:) Investment Institute is re-evaluating its asset price targets in the wake of the Ukraine turmoil, “but we don’t want to over-react when uncertainty is so high,” said Sameer Samana, senior global market strategist at Wells.

Samana stated that “with geopolitics still lurking out, it’s going to be difficult for the market make meaningful headway.”