Stocks Rally 'Round the President

Stock proxies rose at the opening of trading Tuesday, only to quickly surrender those gains and fall into negative territory. But rather than following its recent script of sliding further in the afternoon, major averages rallied after lunchtime on news President Bush has decided to use his powers under the Taft-Hartley Act to impose an 80-day cooling off period in the standoff at West Coast ports.

After trading as low as 7501.28 at midday and as high as 7622.06 late in the session, the Dow Jones Industrial Average closed up 1.1% to 7501.28. Similarly, the S&P 500 gained 1.7% to 798.54 vs. its midday low of 779.50 and afternoon best of 808.86. The Nasdaq Composite closed up 0.9% to 1129.12 after having traded as low as 1109.64 and as high as 1144.13.

The president spoke late in the trading day but word of his decision filtered out shortly after 1 p.m. EDT, coinciding with the market's rebound off its session lows (That was shortly before the president's announcement longshoremen had said they were willing to return to work for 30 days under a deal brokered by federal mediators).

Retailing stocks performed particularly well on anticipation of a reopening of the ports, with the Amex Retail Index gaining 4.6%. Wal-Mart (WMT) was among the biggest positive influences on the Dow, along with 3M (MMM), which said it has been suffering a "meaningful impact" from the shutdown of West Coast ports.

Bush's decision to intervene, which reversed the administration's prior stance, was the main factor accounting for today's broader market advance, according to Steven Massocca, president of Pacific Growth Equities in San Francisco. "With the economy on the brink [of recession] the port strike was not exactly a vitamin pill," he said.

The latest machinations by major averages notwithstanding, much of traders' attention was on the Dow Jones Utility Average, which fell 6% to 185.39 after having traded as low as 175.81 early on, levels not seen since July 1994.

Despite its midday bounce, the Utility Index still finished at its lowest level since March 1995, making it the latest index to post multiyear lows.

The Utility Average began the day down 33% for 2002, as concerns about the economy and the overhang from Enron's implosion and the energy-trading units of other firms have weighed heavily on the sector. The catalyst for today's decline was a profit warning and default announcement by Allegheny Energy (AYE), which plummeted 49.5%.

Separately, shares of TXU (TXU) tumbled 24.5% after a prolonged trading halt midday. TXU later reaffirmed the guidance it gave last Friday, when it warned, reassured investors it has sufficient liquidity, and said it saw "no fundamental reason" for the decline. The stock rallied after reopening at 2:07 p.m., but obviously not enough to overcome the early declines.

Additionally, TECO Energy (TE) lost 9.6% after announcing plans for a 15 million-share secondary offering, which it said will reduce its earnings per share for both 2002 and 2003.

Holes in the Defense

Because of their relatively high dividends and regulated industries, utilities were classically defined as defensive stocks. In recent years, utilities morphed dramatically from their sleepy past and sought new growth opportunities in unregulated and deregulated markets, such as energy trading.