Is the Market Slump Simply a Continuation of May's Fall? (CMR, OIH, SPX)

| About: VanEck Vectors (OIH)

Eddy Elfenbein submits: Friday, the market was down for the third day in a row. Since July 3, the S&P 500 has lost close to 4%.

This is a continuation of the selloff that began in early May. The recent downturn, however, has a very different flavor than initial correction.

In the first part of the selloff (May 5 to June 13), the energy stocks were hit the hardest. Here's a chart showing the Oil Services HOLDRs ETF (NYSEARCA:OIH) in gold, compared with the S&P 500 (SPX) in black and the Morgan Stanley Consumer Index (CMR) in blue.

Selloff 1

This what I wrote on June 13:

Since May 5, the S&P 500's market value has fallen by $807 billion. That's a nice chunk of change. Percentage-wise, it comes to -6.74%.

What's interesting to note is that since the stock market peaked, long-term interest rates have actually declined. Gold is down by $100 an ounce. This is not a market worried about inflation. If we use some reasonable assumptions, in just five weeks, the market has become convinced that around $50 billion of next year's corporate profits will not materialize.

The Big Bad Bear, however, hasn’t treated everyone equally. Here’s the performance of the 10 industry sectors since May 5:

Elf 2

Two observations. First, it's almost the mirror image of the market before May 5. The other is that it’s a pretty wide gap. The bottom three groups, combined, make up just 27% of the S&P 500’s value, but have contributed more than half the losses. The rest of the market has suffered nary a scratch.

The defensive sectors were pretty safe. But since July 3, the energy stocks have been doing well (i.e., not down a lot), while the rest of the market has been feeling the squeeze.

Here's how the sector ETFs have performed from July 3 to this afternoon:

Elf 3

Tech and Materials are still lousy. Utilities, Health Care and Staples are holding up OK, but energy has changed sides, going from laggards to leaders.