MW Stocks in this sector of the S&P 500 are getting more attractive - here's why
By Philip van Doorn
The S&P 500's forward price/earnings valuation has gone down this year, despite a gain of nearly 9%
Citigroup's stock has risen 6.4% this year, but its forward price/earnings valuation has declined because the rolling consensus 12-month earnings-per-share estimate for the bank has increased at more than double that rate.
For years, investors have been warned that the S&P 500 is too expensive relative to earnings expectations. Then again, the broad stock market has been performing well, for the most part, over the past decade, and this year's action has run counter to that warning.
And for the financial sector of the S&P 500 SPX, we appear to be looking at an excellent entry point for long-term investors.
The most commonly cited stock valuation metric is the forward price/earnings ratio. This is a stock's price divided by analysts' consensus estimate for earnings per share over the next 12 months. For a stock sector or index, FactSet calculates this ratio by dividing the sum of the component companies' market capitalization by the sum of analysts' median net income estimates. For financial companies, the consensus estimates are typically based in part on the companies' own earnings guidance, along with analysts' expectations for the direction of the economy and the movement of interest rates - both of which affect loan quality and valuations within investment portfolios for banks and insurers.
Let's do our own calculation for the S&P 500 and its sectors using FactSet's weighted rolling consensus EPS estimates. Here are the 11 sectors' forward P/E ratios as of Wednesday's close, compared with those at the end of 2025. The sectors are sorted by current forward P/E, ascending, with the full index at the bottom. The table also shows how the "P" and the "E" have changed this year. You can see that for most of the sectors, rolling 12-month EPS estimates have increased more quickly than the stock prices. The price changes exclude dividends.
Sector or index Forward P/E Forward P/E as of Dec. 31 2026 price change 2026 change in rolling 12-month EPS estimate
Energy 14.1 16.0 28.0% 45.3%
Financials 14.3 16.3 -7.0% 5.7%
Healthcare 17.3 18.6 -5.4% 1.7%
Utilities 18.0 17.9 4.4% 3.8%
Materials 18.1 19.0 13.9% 19.3%
Real estate 18.4 17.1 10.0% 1.8%
Communication services 21.8 22.3 12.4% 15.2%
Consumer staples 24.0 22.0 11.0% 1.5%
Industrials 25.0 24.0 11.9% 7.2%
Information technology 25.1 26.7 16.8% 24.3%
Consumer discretionary 28.8 29.6 2.6% 5.5%
S&P 500 21.4 22.2 8.7% 12.9%
Source: FactSet
For the full S&P 500, the forward P/E has declined to 21.4 from 22.2 at the end of last year, because the weighted rolling 12-month EPS estimate for the index has risen by 12.9%, while the index's price has risen by 8.7%.
Among the 11 sectors, nine are up this year, with the financial and healthcare sectors being the exceptions.
The energy sector has been the best performer this year, with a 28% gain, while its rolling consensus EPS estimate has soared by 45%, reflecting the disruption to global energy markets during the conflict between the U.S., Israel and Iran.
Getting back to the two sectors that are down this year, the financial sector's forward P/E has declined to 14.3 from 16.3 at the end of last year, while its price has declined 7%, and its rolling consensus EPS estimate has increased by 5.7%. The healthcare sector is more expensive, with a P/E of 17.3, while its rolling consensus EPS estimate has increased by only 1.7%.
If we leave the energy sector aside, since that is a commodity-price-driven story, the time is ripe to screen the financial sector.
Financial stocks with rapidly increasing EPS estimates and declining forward P/E
There are 76 stocks in the S&P 500 financial services sector. The sector is tracked by the State Street Financial Select Sector SPDR ETF XLF, which holds all of the stocks weighted by market capitalization. The full S&P 500 is tracked by many index funds, including the State Street SPDR S&P 500 ETF Trust SPY. It is typical for the financial sector to trade at a lower P/E valuation than the full S&P 500. Here is how XLF's forward P/E has moved relative to that of SPY over the past 15 years:
On average, XLF has traded at 75% of SPY's valuation over the past 15 years.
XLF currently trades at 60% of SPY's forward P/E valuation, compared with its 15-year average relative valuation of 75%.
To screen the S&P 500 financials, we pared the list of 76 companies to 74 covered by at least five analysts working for brokerage or research firms polled by FactSet.
We saw that 57 of the remaining stocks had forward P/E that had declined this year. For some of these, the lower P/E ratios mainly reflected share-price declines. For example, shares of Robinhood Markets (HOOD) were down 32% for 2026 through Wednesday, while the rolling consensus EPS estimate for the company declined by 17.7%.
Among the 57 financial-sector stocks with declining forward P/E, these 20 have had the largest increases in earnings estimates:
Company Forward P/E Forward P/E as of Dec. 31 2026 price change Change in rolling 12-month EPS estimate Dividend yield Block 16.4 20.3 7.2% 32.5% 0.00% Allstate 7.7 8.6 3.6% 15.9% 2.00% Morgan Stanley 15.9 16.8 9.2% 15.6% 2.06% Charles Schwab 14.2 17.8 -8.7% 13.9% 1.40% Citigroup 10.9 11.6 6.4% 13.7% 1.93% Corpay 11.6 12.1 10.1% 13.6% 0.00% Citizens Financial Group 10.9 11.6 3.5% 12.0% 3.04% Intercontinental Exchange 18.5 21.5 -4.4% 10.6% 1.34% PNC Financial Services Group 11.0 11.7 0.5% 9.3% 3.24% KeyCorp 10.9 11.6 0.5% 8.8% 3.95% Mastercard 23.6 29.8 -14.1% 8.7% 0.71% Ameriprise Financial 10.4 11.7 -4.3% 8.3% 1.45% JPMorgan Chase 13.3 15.3 -6.8% 7.8% 2.00% U.S. Bancorp 10.1 10.8 -1.2% 7.8% 3.94% Visa 22.6 26.5 -8.7% 7.7% 0.84% Nasdaq 21.8 25.4 -7.1% 7.5% 1.37% Global Payments 4.5 5.6 -13.4% 7.3% 1.49% Fifth Third Bancorp 12.8 13.4 0.8% 7.3% 3.39% Bank of America 10.7 12.6 -9.4% 7.1% 2.25% Jack Henry & Associates 19.5 27.1 -22.5% 6.8% 1.73% Source: FactSet
Some of the stocks' declining P/E reflects price declines. This includes JPMorgan Chase $(JPM)$, with a 6.8% decline for the stock, while the consensus 12-month EPS estimate has increased by 7.8%.
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May 14, 2026 11:06 ET (15:06 GMT)
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