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
Also strong was Mueller Water Products
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
One big exception to today's strong performance by the capital goods industry was the steep drop by Textainer
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.