The biggest stock-market story in the just-concluded second quarter wasn't a stock, or even a stock index. The story was oil and how its...

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The biggest stock-market story in the just-concluded second quarter wasn’t a stock, or even a stock index. The story was oil and how its soaring price became yet another anchor dragging down equities.

“We’re already struggling with a housing market that’s effectively in a depression and widespread weaknesses in the financial sector,” said Myles Zyblock, chief institutional strategist for RBC Capital Markets in Toronto. “You add the oil dynamics on top of that, and effectively that’s the straw that broke the camel’s back.”

The spot price of a barrel of oil jumped $38.42 during the quarter. By contrast, oil rose $5.58 in the first quarter and $25.32 in the second half of 2007.

Record oil prices did a lot more than cause drivers misery at the pump. Directly or indirectly, oil’s rise triggered price increases everywhere from supermarkets and airlines to shippers and chemical manufacturers. It slammed automakers and dealers still trying to unload gas-gulping SUVs. And it led central banks around the world to prepare the inflation thumbscrews of higher interest rates.

The Dow Jones industrial average ended the quarter Monday by gaining 3.5 points, closing at 11,350.01. For the quarter, though, the Dow was down 7.4 percent, including a 10.2 percent drop in June that wiped out a spring rally.

Other indexes fared little better. The S&P 500, a broader and arguably better market gauge than the Dow, closed the quarter at 1,280.00, up 1.62 points on the day but down 3.2 percent for the quarter. The tech-laden Nasdaq composite index finished at 2,292.98, down 22.65 points, but eked out a 0.6 percent gain for the quarter.

The Seattle Times index of companies headquartered in Washington, Oregon and Idaho fell 12.83 points Monday, ending the quarter at 1,562.98 for a 3 percent loss.

Only a few Northwest stocks are directly exposed to high oil and gasoline prices, but those that were had a rough quarter. RV maker Monaco Coach of Coburg, Ore., lost two-thirds of its value; dealership chain Lithia Motors of Medford, Ore., fell by more than half.

But as consumers dug deeper into their wallets to fill their tanks, they cut back on other spending, offsetting much of the impact of the federal income-tax rebate checks.

Even though corporate profits are expected to be up once the second-quarter reports are in, said Eric Rizza of Coldstream Capital Management in Bellevue, “the market doesn’t trust those numbers.”

Rizza, whose firm manages $1.1 billion in assets, said he expects companies to be much more cautious with their third- and fourth-quarter forecasts, particularly since the Federal Reserve and other central banks around the globe appear to be moving into tightening mode.

But it’s unclear how much impact any Fed rate increases will have on what is a muddled and paradoxical inflation picture. Even though staples like food and energy are costing a lot more, other consumer goods — such as cars, clothing and houses — are dropping in price.

“Everything you need is more expensive,” Rizza said. “Everything you want is less expensive.”

A resurgence of takeovers boosted several of the quarter’s best-performing Northwest companies. Pyramid Breweries, Safeco and Insightful, all based in Seattle, all have buyouts pending, while Oregon’s Mentor Graphics, the region’s top performer, faces an unsolicited takeover bid.

Unlike the private-equity craze that crested last year, most merger-and-acquisition activity now involves “strategic” deals, with one competitor buying or merging with another.

And not all buyouts go smoothly, as Microsoft has discovered in its on-again, off-again pursuit of Yahoo. Besides Mentor, Seattle’s Fisher Communications also has spurned an unsolicited buyout offer.

And the planned acquisition of Oak Harbor-based Washington Banking by Everett’s Frontier Financial fell apart in early June, though it’s not entirely clear why. Each company blames the other and is seeking a breakup fee.

The troubles of the housing and credit markets continue to be a drag on financial stocks, nationally and locally. Of the 10 worst-performing Northwest stocks in the quarter, seven were banks.

RBC’s Zyblock recently raised his rating on the financial sector, but as the bleeding continues with no end in sight, he’s changed his mind.

“I’ve been dead wrong, no question,” he said.

“The financials are back on their heels right now — the banks and at least some of the brokers. And a lot of things that made the financials money in the past are not going to be there going forward,” he said — such as loose lending standards, easy access to capital and complex yet lucrative structured finance products.

The soft market has drained much of the demand for new issues. Only 17 companies launched initial public offerings on U.S. markets in the second quarter, compared with 27 in the first quarter. By contrast, there were 144 IPOs in the first half of 2007.

Only two local companies have pending IPOs: Seattle biopharmaceutical Omeros and Bellevue-based Intelius, which provides online background checks and other information services. Neither has made much visible progress toward going public.

Seattle-based software company Varolii withdrew its IPO registration last month, citing the all-purpose “difficult market conditions.”

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com