Uneven market pain: Energy stocks crash, REITs rebound

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The stock market made history last week, although not in a way most investors would prefer.

The 18.2% drop in the Dow Jones industrial average for the week was the biggest in the index’s 112-year run. It also exceeded the net annual percentage move in the Dow in all but one of the last eight years.

As we pick up where we left off on Friday, I’m providing the accompanying chart just as a frame of reference.

It’s interesting to note where the pain in the market has been concentrated recently. Energy stocks bore the brunt of the selling on Friday and for all of last week, as oil prices continued to plunge, ending Friday at a 13-month low of $77.70 a barrel.

The New York Stock Exchange energy sector index crashed 24.1% last week, leaving it down 45.4% for the year to date. Great time to be looking for bargains in the oil and natural gas business?

Meanwhile, real estate investment trust shares staged a huge rebound on Friday, trimming their year-to-date loss to 23.5%, based on Bloomberg’s REIT index.

REITs’ performance has been a puzzle this year. Given the risk that commercial real estate could follow residential housing into the soup, it’s surprising that REITs overall aren’t doing worse. In fact, many of the stocks were rallying briskly in the first half of September, before the bottom fell out of the market overall in the second half of the month.

Nasdaq’s bank-stock index also seems to belie the reality of the credit crisis. The index, which includes about 500 banks -- most of them small institutions -- jumped 8% on Friday and is down a relatively modest 22% year to date. That is about half the 40% year-to-date drop in the BKX index of 24 big banks. Are things just not that bad out there in the banking hinterlands?

Finally, small-company stocks continue to outperform blue chips, which also is counter-intuitive if the economy is sinking. The Russell 2,000 small-stock index rebounded on Friday to close with a 4.7% gain.

Year to date the Russell index is off 31.8%, seven percentage points less than the 38.8% decline in the Standard & Poor’s 500.