Dow Soars 193, but Why Didn't These Stocks Rise More?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Janet Yellen took over the role of Fed chair at the beginning of February, but for many investors, today will mark the true beginning of her tenure leading the central bank. With her consistent testimony before Congress today, investors celebrated the continuity of policy that looks likely to persist into the future, and the Dow Jones Industrials rose 193 points to fall just short of 16,000. Yet meager gains of half a percent or less in Coca-Cola , Home Depot , and McDonald's have some shareholders wondering whether they'll participate in any continued economic success.

One reason consumer stocks might have performed badly today is that traditionally, stocks in defensive industries almost always underperform on big up days. Prospects of stronger growth push investors toward more cyclical companies that have a greater chance of capitalizing on improving economic conditions. Indeed, in the case of McDonald's, prosperous times have often been a contrary indicator of success, as it largely competes with higher-priced rivals that customers will gravitate to during good times. Even with its breakfast dominance last year, commanding 19% of the market and nearly tripling its closest rivals, McDonald's needs to figure out how to capture customers even when they could afford to go elsewhere.

Growth considerations are also an important part of the equation. McDonald's has plenty of overseas expansion plans, but in the U.S., it's hard for it to get much bigger. Similarly, Coca-Cola has seen difficulty bolstering domestic growth, even as other countries have much lower per-capita sales volumes and therefore have greater latitude for future growth. Strategic measures like its partnership with Green Mountain Coffee Roasters might represent bona-fide efforts to grow, but in some ways, they reflect the desperation that Coca-Cola is suffering as it looks for legitimate growth opportunities despite flagging demand.

Yet perhaps most troubling is Home Depot's tepid advance today. On its face, Yellen's testimony suggested that interest rates could stay low despite the continuing taper of bond-buying activity under quantitative easing. Yet Home Depot and its home-improvement retail rivals will have to deal with the tension between an improving economy's tendency to raise rates and make homeowner financing more difficult, versus its positive impact on shoppers' wealth. Which way those competing factors play out could determine the direction of the Dow in 2014 and beyond.

If the rally continues, then consumer stocks might lag behind. But the more important question is whether they'll serve their defensive purpose in a downturn. If not, then the consumer stocks of the Dow could prove to be the worst of both worlds for investors.