Stocks Edge Up Amid Ukraine Concerns

The moves follow last week’s rise of more than 6% for the S&P 500 and more than 8% for the Nasdaq.

Still, stocks declined in Friday trading in response to a fresh surge in bond yields, a sign that higher rates will continue to ripple through markets. The S&P 500 was down less than 0.1% and the Nasdaq dropped 0.7%. The Dow Jones Industrial Average was flat for the day and down slightly for the week.

Forecasters have been predicting that the Federal Reserve will lift interest rates faster than it currently projects to clamp down on inflation that remains at a multi-decade high. Economists at banks including Citigroup Inc. and Bank of America Corp. this week raised the prospect that the central bank will lift rates by half a percentage point at a time, in contrast to this month’s quarter-point increase.

Such forecasts have jolted the government bond market. The yield on the benchmark 10-year Treasury note jumped to 2.477% from 2.340% on Thursday. This would mark the 12th rise in 15 sessions. Yields and prices move in opposite directions.

In a sign that investors were ratcheting up their interest-rate expectations, yields on short- and medium-term Treasurys, which are most responsive to Fed policy, were up more than those on longer-term bonds.

The yield on the three-year note climbed to 2.531% in recent trading from 2.346% on Thursday. Yields on the five- and seven-year notes were also above 2.5%, reflecting growing expectations that the Fed could raise rates as high as 3% next year before lowering them later. 

Some investors say that because the recent rebound in the stock market suggest investors are taking rate increases in stride, it may embolden the Fed to act more aggressively in lifting rates.

“An additional rally from here could prove to be self-correcting because it could bring out the possibility of more and larger rate hikes,” said

Doug Ramsey,

chief investment officer at Leuthold Group.

At the same time, the war has driven concerns about inflation and disruptions to commodity supplies. President Biden said the U.S. will respond if Russia uses chemical weapons and called for the country to be expelled from the Group of 20 industrial and developing nations, spurring fears of further escalation.

“Markets are trying to price something that is basically impossible to price, as part of what’s going on in the world depends on Putin’s thinking, which nobody knows,” said Fahad Kamal, chief investment officer at Kleinwort Hambros. “The longer the conflict lasts, the higher the upside to inflation, the lower the downside to growth. It’s massively, radically uncertain.”

But U.S. companies that are more domestically focused may be shielded from the worst of the war-related ructions. Many of those companies continue to post solid profit outlooks, according to Diane Jaffee, a senior portfolio manager at TCW.

“There’s been some degradation in earnings outlooks, but the revisions have been very modest to date,” she said.

Consumer confidence for March was below economists’ expectations, according to a University of Michigan survey released Friday. The metric has been slipping in recent months as consumers, particularly lower-income households, hold more pessimistic outlooks on the economy. 

Overseas, the pan-continental Stoxx Europe 600 advanced 0.1%. Swedish engineering firm Trelleborg soared 23% after

Yokohama Rubber

said it would acquire its tire business for $2.2 billion.

Russian stocks fell 3.7% a day after the Moscow stock exchange partially reopened after a month-long closure, reversing some of Wednesday’s 4.4% jump. Gazprom slid 12% and Russia’s largest lender

Sberbank

declined 3.5%. 

In Asia, major benchmarks were mixed. Chinese stocks came under pressure as a U.S. watchdog said delisting U.S.-listed Chinese stocks was still on the table. The Shanghai Composite Index slipped 1.2% and Hong Kong’s Hang Seng Index fell 2.5%. Japan’s Nikkei 225 edged up 0.1%.

—Sam Goldfarb contributed to this article.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

Corrections & Amplifications
The S&P 500 closed up 1.4% on Thursday. An earlier version of this article incorrectly said it closed up 1.4% on Wednesday. Additionally, the University of Michigan survey of consumer confidence for March was published at 10 a.m. ET. An earlier version of this article incorrectly said the survey was set to go out at 11 a.m. (Corrected on March 25.)