S&P Sector Performance Reflects Market’s Dim Mood

This time around, bank credit exposure to the beaten up energy sector is a growing concern along with increasing expectations that the Fed won't be raising rates multiple times this year, if at all. In that case, the yield curve could flatten further, leaving banks with little ability to charge much more for loans than they pay out to depositors.

Also getting clobbered this year are health care stocks, a traditional defensive sector that investors favor when the market overall is weak and volatile. That is not the case this year. The Health Care Select Sector SPDR (XLV), which includes large pharmaceutical companies like Pfizer and Merck and biotech companies like Amgen and Gilead Sciences, has lost almost 11% so far.

Another surprising performance this year is energy sector. Despite collapsing oil and natural gas prices, the energy sector SPDR (XLE) is down just 7.3% this year, performing better than the S&P 500, which has lost 8.2%. Apparently there's hope that OPEC countries will cut production and, along with stabilization in commodity prices, will lead to a rebound in energy shares.

In meantime, S&P 500 companies are on pace to report a 3.9% decline in fourth quarter earnings, according to FactSet. An earnings decline in the fourth quarter would cap three consecutive quarters of year-over-year declines, which hasn't happened since the first three quarters of 2009.

Research Affiliates noted, "The current commodity-induced profits recession may be short lived, but the real secular trend growth rate in EPS should be much slower than the past quarter-century."