The market's Bush victory euphoria spread broadly Tuesday morning as virtually everything was up. As reality set in and the price of oil rose, technology stocks faded. Sectors most likely to benefit from Bush's second term, such as coal producers, drug companies and defense contractors, held most of their gains.

In the end, the

Dow Jones Industrial Average

finished with a gain of 1% to 10,137.05 after trading as high as 10,215.51. The

S&P 500

added 1.1% to 1143.20. The

Nasdaq Composite

, which had rallied as high as 2020, finished up 1% at 2004.33.

The Dow was led by

Merck's

(MRK) - Get Report

4% rise and

Johnson & Johnson's

(JNJ) - Get Report

2.4% move.

Exxon Mobil

(XOM) - Get Report

added 1.7% and

Boeing

(BA) - Get Report

gained 2.6%.

The upward trend looks sure to continue. Hard-core beneficiaries of the Bush era whose stocks came under pressure leading up to the election are due for a relief rally. The rest of the market is going to have to hope that the fundamentals stay strong or improve. If oil prices rise to pesky levels and slow the economy, that won't happen.

"The markets' direction in the second Bush term would be shaped largely by factors that are mostly independent of the election result, such as the fundamentals facing consumers and the direction of

Federal Reserve

policy," Merrill Lynch strategist Tom Sowanick wrote Tuesday. Still, the president's policies "can still affect the relative performance of different sectors."

The rally in major drugmakers, for example, was backed by analysts who said the group had been hit of late with concerns that a Kerry presidency would reopen the Medicare drug plan that bars the government from negotiating bulk discounts. According to David Moskowitz and Stephen Williams at Friedman, Billings Ramsey & Co., price-to-earnings ratios for many companies are trading as low as they did during the 1993-94 Clinton health care debate.

"While the fundamental outlook for major drug stocks is not without difficulty, worse, in our view, would have been an administration that believed the industry still had things 'too good,'" they wrote.

Among the solid gainers on Tuesday, as expected, were coal producers that have benefited from looser regulation under Bush;

Peabody Energy

(BTU) - Get Report

,

Arch Coal

(ACI) - Get Report

and

Massey Energy

(MEE)

each gained 5%.

Defense contractors were up as well.

Lockheed Martin

(LMT) - Get Report

added 3%,

General Dynamics

(GD) - Get Report

rose 4% and

Northrop Grumman

(NOC) - Get Report

gained 4%.

The bond market was quite sure what to do. It sold off hard in the early going as the "flight to safety" that might have been prompted by a prolonged battle over a close presidential election didn't materialize. The yield on the 10-year Treasury note rose as high as 4.16%. But with oil prices higher by the end of the day, the note's yield finished slightly lower on the day at 4.07%. The outlook for bonds is surely muddled, as Bush has run up large deficits without forcing interest rates up, thanks to the huge appetite for U.S. debt among Asian central banks.

Richard Berner at Morgan Stanley said yields are more likely to rise, although current economic weakness and the Fed's actions will delay that response.

At least one major fund manager is ruing the day he failed to buy into the oil patch. Bill Miller, he of the oft-mentioned

(LMVTX) - Get Report

Legg Mason Value Trust and even more frequently mentioned 13-year streak beating the S&P 500, posted his third- quarter comments on Tuesday. His fund lost 5.8% during the quarter, trailing the S&P by about 4%. Miller admits his big mistake of the year was not buying energy stocks.

Former Sanford Bernstein strategist Michael Goldstein, who formed his own firm in 2002, tried to convince Miller of the folly of his ways back at the end of 2003. But energy shares were already on the upswing and Miler wanted to wait for a break to buy. It never came.

Now that energy shares have really skyrocketed, he's still undecided. "Is it a mistake not to own them now? I don't know," he wrote.

Some argue that oil prices could fall because they contain an uncertainty premium that isn't warranted, while others see prices going over $100 a barrel, he noted. "We continue to study the matter in light of today's changed circumstances and probabilities," Miller wrote.

Ever the philosophy student he once was, Miller added: "In retrospect, it will all seem clear, indeed perhaps inevitable. That is what the psychologists call hindsight bias. Those who were right will credit their keen analysis of evident facts and trends. Those who were wrong will blame unforeseen and unexpected events."

Sort of like the forecasters of Tuesday's election, no doubt.

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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