Fed Triggers Stock Market Rally With Announcement

The Federal Reserve announced on Thursday that it would embark on a third round of quantitative easing, or QE3, in an effort to stimulate demand. The Fed will buy $40 billion every month of mortgage-backed securities, with the aim of lowering long-term interest rates to encourage investment. More specifically, the Fed hopes to make mortgages more attractive, spurring more home buying, and hoping to push up the value of homes. Accordingly, a number of companies geared to residential construction saw big gains Thursday.

Leading the pack was Gibraltar Industries (Nasdaq: ROCK  ) , up 5.5%. The company builds and supplies structural components for the home building industry, and it was only slightly ahead of other residential construction equipment manufacturers, like NCI Building Systems, Armstrong Worldwide, and Masco, all up over 4%.

Also strong was Mueller Water Products (NYSE: MWA  ) , up nearly 5%. The company designs and manufactures pipes, valves, and other products used in the build-out and maintenance of water infrastructure, primarily for residential use. The company benefits from residential construction, as municipal water supplies typically need to be expanded whenever a neighborhood grows.

Gains in capital goods weren't limited to residential construction, however. All new construction will boost demand for commodities, and shares of mining equipment manufacturer Joy Global (NYSE: JOY  ) jumped 4% on the Fed's action to encourage economic recovery. More economic activity usually presages higher energy prices, as well, with light crude up over 100 basis points Thursday. Perhaps anticipating high future gas prices, investors bought into luxury electric carmaker Tesla Motors (Nasdaq: TSLA  ) , sending shares up over 4%.

One big exception to today's strong performance by the capital goods industry was the steep drop by Textainer (NYSE: TGH  ) , which was down over 5%. The company, which manages, leases, and sells intermodal cargo containers, has been in a steady slide since mid-August, giving up about 15% of its value over the past month. The only appreciable news recently has been the announcement that the company will engage in a public offering of 1.1 million shares, compared to a current share count of nearly 50 million, in order to fund the acquisition of additional containers, a somewhat routine move.

Textainer, the world's largest lessor of intermodal containers, has grown revenue by over 40% in the last four quarters, and sports a 4.5% dividend yield. Oddly for such a high-performing company, it sells for only 7.5 times forward earnings, about half the average for the S&P 500. The company's recent slide may present an excellent buying opportunity.

While the market reacted very favorably this week to the Fed's actions, many economists are skeptical about whether quantitative easing will actually work to encourage investment and building. Inevitably, a bigger influence on economic performance would be the actions of not the federal bank, but the federal government. With the budget headed toward a "fiscal cliff" in January, the next President -- whether Barack Obama or Mitt Romney -- will need to work fast to implement a solution. Luckily for investors, the Motley Fool has put together a free report on how to profit no matter who wins the election. It's only available for a limited time, and with the election only weeks away, don't hesitate to get your copy now.

Daniel Ferry owns shares of Textainer Group Holdings. The Motley Fool owns shares of Tesla Motors and Joy Global. Motley Fool newsletter services have recommended buying shares of Tesla Motors and Textainer Group Holdings. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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