Wall Street has a magical way of turning bad news into good news in a world where central banks aren’t rushing to abandon the crisis-era accommodative policies.

That was evident last week when Wall Street turned the bad news of Russia invading Ukraine into good news. How? By reasoning that the uncertainty created by the invasion will taper the Fed’s hawkish stand by going easy on interest rate hikes that are expected to begin with its March meeting.

Meanwhile, the uncertainty following the invasion has fueled a strong demand for U.S. Treasuries as part of the fight to safety trade among traders and investors worldwide. Thus, the lower Treasury yields during the week. The 10-year Treasury bond yield dipped below 1.8% on Thursday from close to 2% on Wednesday.

Lower bond yields coupled with expectations for a less hawkish Fed turned the risk-on trade again, and helped U.S. stocks stage substantial gains led by banks, technology, and small caps. Indeed, it was an unforgettable week, with the tech-heavy NASDAQ gaining 220 points on Friday after a 400-plus point gain on Thursday, reversing most of the losses of the previous days.

Still, investors shouldn’t be carried away by Wall Street’s change in mood towards the end of the week. Valuations remain high, even after the 10.6% correction in the S&P 500 from its all-time high before the end of the week rally.

Meanwhile, the Russian invasion of Ukraine complicates rather than eases the job of the Fed and other central banks around the world, as it makes things worse on the inflation front.

“Given Ukraine and Russia’s presence in the supply chains for multiple key commodities, war in eastern Europe runs the risk of exacerbating recent inflation trends,” said Mike Reynolds, Vice President of Investment Strategy at Glenmede.

“Global equity markets have a track record of longer-term resilience in the face of geopolitical flareups; however, this does not mean that the economy and markets are immune to the risks of armed conflicts over the near-term."

Especially, when they come on top of other global disruptions like supply chain bottlenecks, due to the opening of the world economy, and climatic problems.

Then there’s the potential of the U.S. and its allies stepping up the pressure on Russia by cutting its banks from SWIFT -- a system that allows banks to execute transactions worldwide. This move could raise the counterparty risk and fuel a domino effect among financial institutions exposed to Russian borrowers.

“President Biden has so far stopped short of calling for Russia’s removal from SWIFT,” said Reynolds. “If at some point, this comes into play for a third round of sanctions, this could introduce lending disruptions for those with exposure to Russian borrowers. France, Italy, and Austria are the top three countries without standing loans to Russian guarantors, though the scale of this exposure in total appears low.”

But not negligibly low, as evidenced by the relentless sell-off in the bank and financial shares following the news of the invasion.