Trick Question: What Led Stock Plunge in Second Half of 2008?

If you love looking at charts (who doesn’t, right?!), then pop a blood-pressure pill and back up the Standard & Poor’s 500 Index to the last bear market.

Note how after the first bout of ugly, things stabilized in June and July of 2008 before the bottom fell from the bucket around the whole Lehman thing in September. Without a second thought, most would probably nod knowingly and wax about how financial stocks led the purge (and maybe pour some Olde English 800 in the dirt for the homies who didn’t make it out.)

You’d be wrong, sucker! In the second half of 2008, energy and raw-material stocks led the 29 percent plunge in the S&P 500. Both groups sank more than 40 percent and financials were in third place among the 10 big groups with a 38 percent drop.

Nice bit of trivia, you may say, and oh I knew that anyway and why are you bugging me with this now? Energy and commodity stocks also led that kick in the mouth the market just took, with both groups down more than 9 percent through yesterday.

Consumer-discretionary stocks, defined as the companies that want what’s left in your wallet after you fill the gas tank, have famously led the rebound since 2009 with an almost 300 percent rally. A good case can be made that oil’s crash from $145 a barrel to as low as $33.87 back then did more to turn things around than any central bank stimulus ever could.

Market Leaders

Consumer discretionary shares are struggling this year, down 5.4 percent as a group through yesterday, so the $80-a-barrel question keeping the Excel nerds burning the midnight oil this weekend is this: Will this bear market in crude put those stocks back in the driver’s seat and will it be enough to bring the whole market back to where it was a month ago?

It’s a tricky question to answer, since the fracking boom has changed the oil story so much in the last decade. And it’s tough to sort out how much of the plunge is due to booming supply and how much is due to global economic jitters on the demand side. Energy stocks now account for about 9 percent of the S&P 500 compared with almost 16 percent in the $145-a-barrel days. Consumer discretionary accounts for 12 percent of the index, versus 8 percent then.

Oil Jobs

Of course, the fracking boom means there are more roughnecks in the malls. Since the recession ended in June 2009, almost 200,000 jobs have been added in the U.S. oil and gas industry. Good jobs, relatively: derrick, rotary and service unit operators make about $21.79 an hour versus a median $16.87 for all occupations, the latest government data show.

Darn it, is this plunge in oil good or bad for the market?

“I think it’s going to end up being positive,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. “The initial leg down to $85 was bad for energy, but good for pretty much everything else as it was accompanied by more oil supplies and a little less political risk premium. Lower oil prices is very good from a political standpoint in terms of pressuring Russia. Russians can’t balance their budget with oil prices where they are.”

Jordan Kotick, head of cross-asset strategy at RBC Capital Markets, promises to drop a note on the subject Monday but here’s a teaser of his thinking: oil and U.S. stocks are correlated but it’s a weak correlation over the long term. Ultimately it may be a wash for the market as a whole.

“Markets are aware of oil but also dealing with the cross winds of a two-speed US(a) and Them economic situation,” he said in e-mail. US(a) and Them. Ha. See what he did there?

‘Any Cost’

Some other thoughts on the subject floating around:

Maybe oil won’t go much lower. Signals from the options market (for the wonks: a doubling in the three-month put-call skew for West Texas Intermediate) show a “hedge at any cost” sentiment that may be a sign of capitulation and a bottom in prices, Goldman Sachs Group Inc.’s John Marshall and Katherine Fogertey wrote in a note to clients yesterday.

Indexes of hedge funds show the 2 and 20 crowd would generally benefit from a rebound in oil, though not a ton. “The magnitudes of these exposures are small: even for equity long/short, with the largest exposure, a 10 percent rise in crude adds only 50 basis points to expected returns,” Morgan Stanley equity strategists led by Adam Parker wrote Oct. 9.

So that’s what’s up with stocks and crude, aka black gold, Texas Tea, and not to be confused with olive oil. The best strategy for dealing with the latter is still the same: drizzle it generously on a saucer, dust it with freshly ground black pepper, and mop it up with a few thin slices of Hoboken bread.

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