Market Insider

How the 'C' class is schooling the stock market

Jose Antonio Santiso FernA!ndez | E+ | Getty Images

The "C" class—stocks viewed as the lowest quality—has been teaching the rest of the market a lesson this year, leading the way with oversized gains.

But that could end as the Fed starts to slow down its bond buying program, expected in the next couple of months, and some strategists see a rotation coming into higher-quality, steadier earners.

"We've basically been in a market that's had a 'risk on' appetite. The market's up strong. It's driven by the fact interest rates remain low. The Fed continues to stimulate the market," said Chris Sunderland, institutional portfolio manager at Eaton Vance. "The lower-quality small-cap companies have pretty much led this market since March 2009, really since rates have been cut to zero."

S&P Capital IQ actually rates the companies of the with letter grades on the quality of how consistently companies raised earnings and dividends in each of the last 10 years. The average grade is "B+."