Some Minnesota companies' stocks were knocked around more than others on Monday, but on the whole, their performance appears to mirror national trends.
On the first day of trading after Standard & Poor's downgraded the nation's credit, Minnesota companies had seats on Wall Street's roller coaster.
Corporations across the U.S. and Minnesota have been reporting strong earnings this year, including in recent weeks. But you wouldn't know it from the performance this month. Discouraging economic news stokes fears about another recession and chokes off optimism that robust corporate profits might inspire.
The S&P downgrade late Friday last week, combined with new fears about Europe's debt crisis, adds to investors' fears and pushed stocks lower on Monday. The Dow closed down 635 points, or 5.6 percent.
"The stock market is looking out and saying, 'Okay, if the economy is slowing, and we also think that inflation is possibly building, that it's going to be tougher for companies to produce these record earnings," said Andy Engel, a senior research analyst with the Leuthold Group in Minneapolis.
The companies holding up best in the stock market's gyrations are defensive bulwarks in a recession, Engel said. They're the areas that investors think will be profitable even if the economy tanks.
"Defensive areas like utilities where you're going to continue to get a good yield for holding the stock," Engel said. "Consumer staples, personal products, beverages — just the things that are kind of necessities."
Minnesota companies that fall into these categories appear to either have been rewarded today, or at least punished less than others. Among Minnesota's big-name employers, food companies General Mills and Hormel suffered the smallest decline in stock price, falling 2 percent and 4.5 percent, respectively. Target and 3M also held up better than the Dow.
Financial companies tumbled more steeply. Shares of U.S. Bank and Wells Fargo, which has major operations in the Twin Cities, each fell about 9 percent. TCF Financial plunged 12 percent, as did Ameriprise Financial.
But amid the general uncertainty about the effects of the downgrade, experts disagreed about why investors had such a glum outlook for financial stocks. Bert Ely, a banking consultant in Virginia, blamed fears of further loan losses, which have sunk hundreds of banks over the past few years. Those losses had been abating recently, Ely said.
"But I think the concern is there that if the economy does fall into recession, there will be a reversal, and loan losses will go back up," Ely said.
Jon Arfstrom of RBC Capital Markets in Minneapolis thinks the issue is more about revenue than potential losses.
"Investors want to see growth in the economy and growth in the loan portfolio in the banks," Arfstrom said. "And if this general uncertainty leads to borrowers putting their hands in their pockets and not expanding their businesses, that's what will hurt the banks from a revenue perspective."
One local expert believes the fear to be exaggerated. Jim Paulsen, chief investment strategist at Wells Capital Management, thinks Wall Street is panicking and not taking a long view. Paulsen doesn't foresee another recession, even though he agrees that the economy is slowing. He points to positive economic indicators, including the 154,00 jobs created by the private sector in July.
"We're seeing auto sales bounce. We had a huge reported increase in consumer credit on Friday. We're seeing the weekly economic indicators rose again last Friday; they've been rising since June 24th. That hardly sounds like an economy which is completely stalled," Paulsen said.
These strengths will become increasingly evident in coming months, Paulsen said. But that sense of confidence may be in the minority as investors come to grips with a period of historic uncertainty.