business

Investors who have been ignoring their monthly statements since the bear-market lows of March might be surprised to learn they could be in positive territory, year-to-date. The Bloomberg-Star Tribune 100 index of Minnesota's largest public companies is up about 10 percent so far this year versus about 6 percent for the Standard & Poor's 500 index, including dividends.

Still, the indexes feel better than they really are. That's because the Strib 100 and S&P 500 are up more than 30 percent from their March lows.

Why are Minnesota stocks outperforming their bigger bretheren, such as the S&P 500?

"Small-cap stocks normally do [better] in market rallies," said Keith Tufte of Longview Asset Management. "They are riskier and ... they go up more in bull markets and down more in bear markets normally. This rally is no exception."

The Minnesota rally is led by the likes of Navarre Corp., outdoors retailer Gander Mountain, TV shopping channel ValueVision and Caribou Coffee, up 100 to 300 percent this year. Does that mean long-term shareholders are making out? Not necessarily. Generally, these stocks have been declining for several years owing to flawed business plans, flawed leadership or poor execution.

Take Navarre, a digital-entertainment company. It's up about 125 percent this year. But the stock trades around $1.50 per share. In January 2005, the stock traded above $19 per share.

Then there's Caribou Coffee, which went public around $10 in 2005. It's up more than 300 percent this year. But that only gets you to around $6.60 per share. Lower than 2005. To be sure, new CEO Michael Tattersfield appears to have a clue, although it's tough going, with a Starbucks and an independent competitor on every block.

Russell Investments just completed a study that suggests small-cap stocks tend to do worse in a recession. When investors get spooked, as they were when the market fell by half between October 2007 and March 2009, they run for safety toward government bonds and sound stocks that weather recessions pretty well. Those companies include the larger likes of General Mills and utility companies such as Xcel Energy. Those drop less during market falls and rise less during upswings.

Some household-name technology, retail and financial stocks are up by nearly 50 percent since the first-quarter plunge. For example, banking giants U.S. Bancorp and Wells Fargo & Co. have bounced solidly off their March lows, though they remain below their January highs.

Shares of Target Corp., hurt by the slowdown in consumer spending, have jumped nearly 60 percent from their March 9 low of $25.37 to close Friday at $40.38.

Market may run sideways

To be sure, there are still bears out there. And few expect the stock market to continue its recent steep ascent for the entire year.

Brian Belski, a former Twin Cities market strategist who now works for Oppenheimer & Co. in New York, said he won't be surprised if the market runs sideways for a while. Investors want to see evidence of improved earnings that are expected in the second half of the year from the country's major corporations. Belski expects the S&P 500 to add another 20 percent in value by July 2010.

The S&P 500 at 1150 feels good. But it's far short of the S&P 500 at 1500 in October 2007.

That was just before the economy cratered at the intersection of cheap credit, trillions in bad mortgages and exotic financial products. Today's tentative signs of economic recovery -- Fed Chairman Ben Bernanke calls them "green shoots'' -- are making people feel better.

"We will see continued improvements in the economy and the credit markets, and that is why I think the market will continue to move upward over time," Tufte said. "We will not go back to the lows of early March 2009. I think good-quality growth stocks will continue to perform well. I also still like international stocks. Minnesota stocks I continue to own and like are C.H. Robinson and Ecolab.

"They are both high-quality growth companies with international exposure which benefit from an improving global economy. I would still underweight financials and real estate. I think stocks will outperform bonds and cash over the next year."

In June the Leuthold Group, which tends to be bearish when others are bullish, affirmed its positive calls of last fall and winter and said it was boosting its equity exposure to 70 percent of its "core" and "asset-allocation" portfolios -- about as bullish as the Leuthold Group gets.

Leuthold research director Doug Ramsey said there's still money to be made in big companies, including diversified financial services and foreign companies. Just don't expect to make all your money back in a hurry.

"We remain bullish through the end of this year and possibly into next," Ramsey said.

"Though the Obama administration will take full credit for the emerging recovery, the reality is the [$785 billion] economic stimulus spending [this year] has had little time to work through the system. We know it's become fashionable to bash the free market, but it may well be that falling prices for houses and autos are now providing the type of stimulus that Fed rate cuts once supplied in 'normal' recovery periods."

Finally, consumer confidence is rising.

And I've bought into the leaner, greener future. I bought a new Ford Focus this month to replace a 15-year-old junker. Why do I feel inclined to spend?

It's the "wealth effect," economists say. My cash flow is down. But I still have a good-paying job and hope. Moreover, the market is rising. Our 401(k) and IRA retirement accounts are worth tens of thousands more than they were in March.

I can't touch the money for years. But it makes me feel richer.

If you haven't been reading your 401(k) statements lately, it's time to take a look.

Neal St. Anthony • 612-673-7144 nstanthony@startribune.com