The central bank's decision to raise short-term interest rates by a quarter percentage point - the second such increase this year - showed Federal Reserve chairman Alan Greenspan and his colleagues are determined to prevent a surge in prices from causing the economy to overheat.
Demand for houses, cars and other big-ticket items will fall, and that means trouble for producers of the plywood, aluminium and steel that supply the raw materials for those goods.
"The Fed is going to really fight inflation, which will keep the pricing on commodities down," said Peter Landini, chief equity strategist for Fremont Investment Advisers, which manages $5.8bn (pounds 3.6bn) in San Francisco.
Yields on the benchmark 30-year Treasury bond fell to 5.86 per cent, a three-month low, after the Fed raised rates. Bonds ended the week up $1.25 per $1,000 face amount, to yield 5.98 per cent. "It's a vote of confidence,'' said John Boritzke, the head of fixed income at M&I Investment Management Corp in Milwaukee, which has $10bn of assets. "We're not trying to play catch-up after inflation's already a problem. We're ahead of the game.''
That was little comfort for owners of commodity stocks. They had been the stars of the market this year as economies around the world picked up and companies took steps to cut costs. Now investors are likely to turn to companies that can increase profits regardless of whether the economy is surging.
For the week, the Standard & Poor's 500 index gained 0.9 per cent and the Dow Jones Industrial Average was little changed. The Nasdaq Composite Index, dominated by big, fast-growing computer companies, jumped 4.2 per cent. "The focus has been on growth stocks again," said Mr Landini.
Investors are back to buying shares of drug and computer-related companies. Eli Lilly & Co rose 11 per cent and Microsoft gained 12 per cent last week, leading the S&P 500. Those stocks "do best when there's moderate economic growth and low inflation, because people are willing to pay up for growth,'' said Robert Turner, chief investment officer at Turner Investment Partners, which oversees $3.7bn.Reuse content