Index of biggest Minnesota companies rises to new high

The Bloomberg-Star Tribune 100 index of Minnesota's largest publicly traded companies hit an all-time high Thursday as investors bet that the Federal Reserve's latest commitment to monetary stimulus will accelerate economic growth.

"The market today anticipated that the Fed won't take away the monetary punch bowl until the Fed gets the sense that the job market is starting to recover at a faster pace," said Beth Lilly, Minneapolis-based portfolio manager for Gamco Investors Inc. "The key remaining issues are the election ... and whether Congress will address the 'fiscal cliff,' the short-term debt issues. People and companies are concerned about that."

The Standard & Poor's 500 index Thursday hit its highest close since October 2007. Lower interest rates, which the Fed has promised into 2015, make riskier assets like stocks more attractive.

The Bloomberg-Star Tribune 100 index was launched in 1998 with a base value of 100. The index hit its all-time low of 90.99 on March 9, 2009 -- the low point of the bear market that followed the global financial crisis in late 2008.

Among Minnesota's big winners were Winmark, up 6 percent; Capella Education (4.3 percent), Ameriprise Financial (2.6 percent) and Deluxe (1.9 percent).

Resurgent Arctic Cat, the maker of snowmobiles and recreational vehicles, has doubled in price this year. And rival Polaris Industries is up more than 50 percent year-to-date.

Piper Jaffray, a harbinger of the investment-banking trade, was up 2.6 percent Thursday and nearly 35 percent for the year. U.S. Bancorp, considered one of America's best-run big financial houses, was up 2.7 percent and about 35 percent so far in 2012.

"The tone from several of the companies we follow has been to prepare for a slower second half," said Andy Adams, a portfolio manager at Mairs and Power, the St. Paul investment firm. "That, coupled with average corporate profit margins that are very near their peak historical ranges, makes it awfully tough for companies to grow earnings as quickly as their stock prices have recently moved up."

But Adams conceded that "even with the strong showing this year, stock market valuations are still very reasonable relative to historical levels and certainly look attractive relative to bonds. So we don't see a sharp [downward] correction on the horizon."

The stock market often is considered a leading indicator of the direction of the economy. Companies, including those in the Bloomberg-Star Tribune index, have posted record profits thanks to increased worker productivity and investments in technology. But many still employ fewer people than they did in 2007.

Economists and many politicians say the economy is not in full recovery until the unemployment rate drops from about 8 percent to under 5 percent.

"Since the economy is growing below its potential, and unemployment is above what is acceptable, while inflation and inflationary expectations are stable, then the Fed is justified in taking today's action," said David Joy, chief market strategist at Ameriprise Financial. "I support the Fed's decision but question how effective it will be."

If that happens, she added, "the market should rally further."