Energy stocks have been summarily punished over the past year and a half. And it hasn't been a minor selloff. Now that the Federal Reserve has begun the tightening process, it will likely further cloud the outlook for the sector. Why? Because energy prices won't stabilize until we approach an equilibrium point at which energy supply meets energy demand. The Fed's normalization process will likely lead to further gains in the dollar, and therefore more downside volatility in the prices of energy and energy stocks.
The S&P 500 energy index is down about 38 percent from its high in mid-2014 (not including dividends). Perhaps more stunning, the S&P 500 energy index now comprises just 6.6 percent of the S&P 500 after peaking out at an intra-year high of over 16 percent in mid-2008.