Industrials Rack Up Gains

Industrials ended up Wednesday, as investors absorbed new data from payroll processor ADP indicating that 162,000 new private-sector jobs were created last month, well above the 153,000 analysts expected. The Bureau of Labor Statistics is scheduled to deliver its own figures on Friday. Homebuilders in particular surged on further evidence that a housing recovery is under way. A sharp fall in oil prices also buoyed the transportation sector.

Wednesday saw most major homebuilders advance more than 6% after the Mortgage Bankers Association announced that weekly mortgage applications jumped 16.6% in the final week of September, up from a 2.8% increase the week before. This lends support to the idea that QE3, the Federal Reserve's latest round of pushing down rates by purchasing mortgage-backed securities, is actually working to make home buying more attractive.

Hovnanian Enterprises (NYSE: HOV) led the pack, gaining a whopping 12.2% in Wednesday's trading. Hovnanian also announced Wednesday that it's exercising an option to pay down over $600 million in debt early, which investors took as a sign of confidence.

Homebuilders aren't the only businesses to gain from a housing recovery: Manufacturers of products used in home construction and maintenance, as well as in residential infrastructure, were also up strongly on Wednesday. Pentair (NYSE: PNR) , a maker of flow control products for water infrastructure as well as filters and pumps used in building ventilation and water systems, was up nearly 3%.

Oil fell more than 4% Wednesday, good news for transportation companies that count fuel as a major expense. That sector's best performer was US Airways (NYSE: LCC) , up more than 8%. In addition to lower fuel costs, US Air announced Wednesday that its passenger load for September rose 0.8%. Other major airlines were up between 2% and 6%, anticipating similar good news.

Wednesday's worst performers were weapons manufacturers, as investors reacted to Benchmark analyst Mark Greene's finding that FBI background checks for weapon applications rose nearly 15% in September. That sounds like good news for arms makers, but growth in firearm applications has been more like 20% to 25% in recent months. Accordingly, despite declining 4.5% today, Smith & Wesson (Nasdaq: SWHC) is still up nearly 340% over the past 12 months.

Non-lethal weapons are subject to the same concerns over potential regulation: TASER International (Nasdaq: TASR) has outperformed the Dow Jones Industrial Average 40% to 26% over the past year. Like other weapons manufacturers, it fell today, down 2.3%. Today's decline may present a decent buying opportunity, if you think TASER is destined for greatness.

Concerns over the 2012 election are thought to be driving strong weapons sales. In his report, Greene wrote, "Before the election, people are buying firearms because they think that if re-elected, President Obama might go after more firearms regulation." Smith & Wesson CEO James Debney echoed that sentiment in June, saying that presidential politics were driving company returns.

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