Wow, the market has become volatile. With the S&P 500 and its tracking exchange traded ETF (SPY) selling off nearly 2.5% after the disappointing jobs report at the end of the week, the market sold-off hard from the high made on Tuesday.
Market leaders such as Mastercard (MA), Apple (AAPL) and Baidu (BIDU) were hit hard as well.
Market bears have now been emboldened by a rising dollar, increasingly poor jobs data, and continued issues with the PIIGS sovereign debt in the eurozone.
Indeed, with the recent jobs report confirming what the Challenger and ADP reports have shown, economic growth in the U.S. seems to have slowed.
The worst performing sector during the sell-off has been energy, with energy stocks selling off nearly 10% in the recent market decline despite consistently underperforming the market prior to the recent sell-off.
Oil prices topped out in late February around $110 a barrel, and oil today is around $98 dollars a barrel. Oil prices rebounded ahead of the market recovery in September, and topped out ahead of most of the broader indexes declines in April.
Most major exchange traded and mutual funds leveraged to the oil sector have also underperformed the broader indexes by a fairly wide margin as well.
As we can see, the OIH has consistently underperformed the S&P 500 by a fairly wide margin during the recent sell-off.
However, despite the continued weakness in oil stocks, recent trade and housing data, as I've discussed at length in my previous articles, continues to improve in China. Several shipping companies have also become more bullish on Asian growth accelerating in the back-half of the year as well.
Earnings reports from leading drillers and oil service companies such as Transocean (RIG) and Halliburton (HLB) have been strong, despite the weakness in many ETF and mutual oil funds.
Several leading Oil companies such as BP and Royal Dutch Shell (RDS.A) are also now yielding nearly 5%.
Finally, despite the consistent underperformance of the energy sectors, most ETF and mutual funds, such as the OIH, are still holding key support levels.
Despite leading the recent pullback in most of the broader indexes and oil prices, the OIH is still holding its six-month support level.
To conclude, while much of the weak recent economic data has come from the U.S., China is still the most leveraged economy to the eurozone. While predicting market moves in the short-term is obviously very difficult, the economic data in China continues to improve and the recently disappointing jobs data was still largely in line with most forecasts from several weeks ago. China is also still the largest buyer of crude oil today.
Energy stocks have been the weakest sector both during the nearly six-month rally, as well as during the April and May sell-off. While the weakness in oil producer and oil service stocks has been significant, if the strongest emerging markets continue to improve, these sectors should be able to attract new capital at today's prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
