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We know Monday's gut-wrenching market selloff is China's fault, we just don't know how far the market damage goes.

One of the first and most important lessons taught to trading-floor newbies is, "the market's never wrong." Like any rule of thumb, it's not infallible. But, it has the distinct advantage of forcing investors and traders to look deeper when the market – as the aggregation of all investor knowledge – provides a surprise.

In an effort to uncover what the market is telling us now about the selloff, the accompanying charts compare the performance of S&P 500 sectors in the 12 months before the beginning of August to the main victims of the carnage in the past three weeks. I'm using the S&P 500 because it is the most diversified of the major indexes, far more so than the domestic S&P/TSX composite, and is more likely to reflect global trends.

This is speculation to some extent, but a look at the sector breakdown suggests current market volatility is being driven primarily by global economic growth fears and, more specifically, the possibility that China's sharp slowdown could affect the United States and other developed world economies.

The top chart shows the 10 top performing U.S. industry sectors between the beginning of August, 2014, to Aug. 1, 2015. The short list is dominated by technology and health-care stocks. Semiconductor stocks were the top performers and the S&P Technology Hardware & Equipment Industry index was close behind in third place. Health-care stocks are represented by the Health Care Equipment & Services index and pharmaceutical and biotechnology stocks.

The S&P 500 transportation index is also among the best performing sectors and might be the most important bar on the chart. Investor faith in transportation stocks – railways, airlines, trucking companies and the like – is a clear sign of investor optimism regarding economic growth.

The lower chart shows the 10 worst performing sectors so far this month. Four of those indexes – energy, transportation, autos and materials – are a direct reflection of economic sentiment. Weakness in energy and mining stocks started long before August, but it's telling that these sectors are among the worst performers even after previous weakness. Importantly, China's resource demand provides the most direct connection between its growth and North American markets.

Transports are again important on the lower chart. The economic optimism that drove the sector higher has given way to concern. The index has many stocks that are sensitive only to U.S. growth, such as railways, but also includes airlines and companies such as Federal Express that are greatly dependent on global economic expansion.

The S&P 500 transportation index, with its mix of domestically and globally focused U.S. stocks, will be the important indicator to watch in the next few days, in my opinion. Price stability for stocks in the sector would indicate fears relating to a China-led slowdown are subsiding for North American and global markets.

Follow Scott Barlow on Twitter @SBarlow_ROB.

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