Will the Fed Smack Down the Dow? Bank of America Corp (BAC), Microsoft Corporation (MSFT)

Driving consumer demand
Finally, it’s important not to underestimate the role that the Fed has played in reawakening activity in the housing market. By focusing its latest quantitative easing efforts on mortgage-backed securities, the Fed is targeting housing as a primary driver of future growth.

Housing is a good place to focus the Fed’s efforts because of the long reach the industry has in creating jobs in related businesses. Within the Dow, The Home Depot, Inc. (NYSE:HD) is the company that’s most clearly connected to housing, as rising home prices spur both remodeling and new-home construction that require the materials and products that the home-improvement retailer sells. Yet construction workers, real-estate agents, bank mortgage officers, and a host of other professionals owe their livelihood to the housing industry, and when it’s strong, they benefit.

Watch the Fed
As questions arise about when the Federal Reserve might change its policies, you’ll want to keep in mind the consequences that Fed action will have on the Dow stocks you own. The Fed may not make or break a company’s results by itself, but in many cases, the impact will be large enough to make a substantial difference in your investing performance.

The article Will the Fed Smack Down the Dow? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger owns warrants on Bank of America and JPMorgan Chase. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends Home Depot and owns shares of Bank of America, IBM, JPMorgan Chase, and Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.