Looking for Bargains Amid a Historically Expensive Stock Market? Statistically Speaking, This Sector Is Full of Them!

With the exception of the five-week COVID-19 crash in February-March 2020 and the nine-month bear market in 2022, Wall Street’s benchmark indexes — the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) — have been virtually unstoppable since the start of 2019.

While years of green arrows have put giant smiles on the faces of investors, they’ve also extended stock valuations into the stratosphere. According to the S&P 500’s Shiller Price-to-Earnings (P/E) Ratio (also known as the Cyclically Adjusted P/E Ratio, or CAPE Ratio), the stock market entered 2026 at its second-priciest valuation in history.

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Although finding value on Wall Street is considerably tougher than it’s been in the past, one S&P 500 sector stands out as historically cheap amid an expensive stock market.

Let me save you the suspense: it’s not the technology sector! Although select areas of tech are certainly becoming intriguing following sizable pullbacks (ahem, software), the S&P 500’s tech sector is still sporting a P/E ratio of 21.

It’s also none of this year’s top-performing sectors, which include energy, utilities, and industrials.

Based on data from Compustat, FactSet, IBES, and Goldman Sachs Global Investment Research, the one S&P 500 sector that’s a screaming bargain for investors right now is financials. S&P 500 financial stocks’ current P/E of 14 ranks in the 29th percentile in terms of absolute P/E over the last 10 years.

Although financial stocks are often highly cyclical (i.e., tied at the hip to the U.S. economy), there’s a big reason to be excited about this sector trading at a historically low P/E multiple: the outlook for interest rates.

The Federal Reserve has been in a rate-easing cycle since September 2024. As recently as five weeks ago, it was expected that rate hikes would continue throughout 2026 and possibly into 2027. Although lower borrowing costs are great news for consumers and businesses, this isn’t the case for banks and insurers, which typically thrive when interest rates move higher.