Minnesota stocks are a microcosm for the U.S. market — mostly underperforming

The first thing most people mention about the Twin Cities business scene is the number of Fortune 500 companies that are based here, which is high for a region this size.

The most interesting thing, though, is the diversity of them and other publicly traded businesses here. That can mean they have relatively little in common, and that the Twin Cities lacks the kind of identity that places like New York, Detroit and Silicon Valley have.

Collectively, though, the performance of our listed companies at any given moment tends to reflect the country as a whole. And a look at how the stocks of Minnesota's publicly traded companies have done this year shows, in microcosm, how defensively investors are handling their money.

They've ditched many consumer stocks, with Minnesota's two retail giants feeling the impact. Shares in Best Buy are down about 10% as it endures a downcycle in demand for electronics. Target shares are off 23% amid declining sales and a merchandising controversy related to Pride month.

However, the best-performing stock in Minnesota this year is a play on the other side of the retail spectrum. It's Plymouth-based Winmark Corp., the franchisor of secondhand goods retailers like Plato's Closet, Play It Again Sports and Once Upon a Child, with shares up 58%.

As the third quarter winds to a close, we're getting closer to the two-year anniversary of the most recent peak on the stock market. While there have been some wide swings, investors have essentially marked time while the Federal Reserve fought inflation by raising interest rates, something that tends to attract money away from equities.

The Dow Jones industrial index has hovered around 34,000 in recent weeks, almost exactly where it was in September 2021. It hit a record high on the last day of trading in 2021 at 36,488.

From the start of the year through Monday, 19 of the 68 Minnesota-based companies listed on the New York Stock Exchange or Nasdaq have outperformed the 16% total return of the broader S&P 500 index.

About half of those have been in the energy or industrial sectors that are seen as safe havens in uncertain times. They are led by water-treatment firms like Pentair and Hawkins, industrial suppliers like Tennant, Ecolab, Fastenal, and energy firms like Otter Tail and Northern Oil and Gas.

Another 11 Minnesota stocks have shown smaller gains this year, a mixed group that includes Graco, Ameriprise, Polaris, Medtronic and Donaldson.

The other 38 are trading lower than they were at the start of the year.

To my surprise, they include UnitedHealth Group, which stalled out this year after a decade in which its stock grew more than 10 times in value. In that time, it became Minnesota's largest company by revenue and market capitalization and became one of the 30 stocks on the benchmark Dow Jones index.

UnitedHealth's total return is down about 3% this year, despite beating investor expectations with its sales and profit growth in the first half. And last week, analysts at Morgan Stanley recommended UnitedHealth shares with only a handful of others, including Apple and Boston Scientific, in a basket of dividend-paying growth stocks for investors still worried about the prospect of recession.

Following last week's decision to hold interest rates steady, Federal Reserve Chairman Jerome Powell told reporters the central bank's "primary objective" remains to bring inflation back to the 2% level in a "soft landing," or without tipping the country into recession. He called it a "plausible outcome" rather than a "baseline expectation."

"That's what we've been trying to achieve all this time," Powell said. "The real point, though, is the worst thing we can do is to fail to restore price stability, because the record is clear on that … You can have a long period where the economy is just very uncertain."

The list of Minnesota stocks that have tumbled this year is filled with companies that directly face consumers, including General Mills, Sun Country, Sleep Number and Toro. Most of Toro's 28% drop came this month after it reported worse-than-expected sales for its residential products this summer.

That's a sign of how impactful the economic uncertainty that the Fed is trying to end can be. A survey by Pew Research this summer found that 72% of Americans rate the economy as faring badly. That was a bit worse than the 70% median of 24 countries where Pew surveyed attitudes.

"A lot of that is just people hate inflation, hate it," Powell said. "And that causes people to say the economy is terrible. But at the same time, they're spending money. Their behavior is not exactly what you'd expect from the surveys."

Winmark 58%

Hawkins 55%

Pentair 48%

ANI Pharmaceuticals 44%

nVent Electric 42%

Bright Health -89%

Pineapple Energy -68%

Clearfield -68%

Agiliti -58%

Miromatrix Medical -56%