Why Defensive Stocks Helped the Dow Recover

Investors managed to close the week on a positive note for the stock market, as the Dow Jones Industrials (DJINDICES: ^DJI  ) rose 41 points. Yet as comforting as a gain of any size might be after the past two days, it's clear that investors are still unconvinced that the four-year-old bull market can continue on its present course in the face of potential resistance from the Federal Reserve.

In some ways, markets are stuck, as good economic news will prompt the Fed to exit faster, while weak economic news might perpetuate stimulus measures but only at the cost of raising pessimism about the overall health of the economy. That irresolvable dilemma is likely a big part of why investors aren't seeing the recent drop as a buying opportunity.

One thing investors are doing, though, is returning to their old playbooks. Defensive consumer stocks were among the top performers in the Dow today, with Procter & Gamble (NYSE: PG  ) posting a jump of nearly 3%. In recent weeks, P&G has suffered as investors have bid down dividend stocks along with the rise in bond yields. Yet despite a fairly substantial run-up in rates today, P&G is going the opposite direction, with the company looking to restart its emerging market growth initiatives and get back on a more innovative track with its products.

Coca-Cola (NYSE: KO  ) also posted a strong gain of 1.6%. As much as the soft-drink giant has suffered controversy from the obesity epidemic in the U.S., its growth prospects around the world remain enviably strong, and it would take a massive economic disruption to stop Coca-Cola from realizing its profitable prospects in emerging markets -- with earnings that would go a long way toward offsetting any headwinds from greater regulation in the U.S. or other developed economy countries.

Finally, Merck (NYSE: MRK  ) rose 1.5%, showing some of the same resiliency that P&G, Coke, and other high-yielding dividend stocks showed today. Yet as Fool contributor M. Joy Hayes noted yesterday, Merck faces the challenge of navigating the Supreme Court's ruling on so-called "pay-for-delay" agreements with generic-drug producers. Given the higher profit potential from delaying generic production as long as possible, it's clearly in the best interest of big pharma companies to enter into such agreements, but with the FTC and other regulators having the power to review them for potential problems, it will become harder for Merck to count on enforceable agreements with generic rivals.

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