There is mounting evidence that the financial services sector really is the Rodney Dangerfield of the 10 S&P 500 sectors.
Last week we noted that the Financial Select Sector SPDR Fund (NYSEArca: XLF), the largest U.S. sector ETF by assets, like so many of its big bank ETF brethren, was still not trading anywhere close to its pre-financial crisis highs. That despite stellar runs for most financial services ETFs in 2014. [10 ETFs Still Nowhere Near Pre-Crisis Highs]
We also noted the 12-month forward P/E of 12.7 on the financial services sector is the lowest among the 10 S&P 500 sectors. That is barely above the sector’s 10-year average of 11.9 and the only other sector is even close to be valued in a “no respect” fashion similar to financials is energy, according to FactSet data.
Said another way, financials are currently the cheapest sector in the S&P 500 based on 12-month forward P/E ratios and investors can grab XLF for a song compared to equivalent staples, telecom and utilities ETFs. [Financials: The Rodney Dangerfield Sector]
There is more. At the sector level, eight of the ten sectors are projected to report a year-over-year increase in earnings for the quarter, led by the Financials (24.9%), Industrials (14.2%), and Telecom Services (14.0%) sectors. The Energy sector is expected to see the lowest earnings growth rate (-7.2%), according to FactSet by way of Josh Brown at The Reformed Broker.
Since the start of the fourth quarter, XLF has handily outpaced the Energy Select Sector SPDR (NYSEArca: XLE) and the iShares U.S. Telecommunications ETF (NYSEArca: IYZ). XLF is up 5.4% since Oct. 1, barely better than the 5.2% gain posted by the S&P 500 and well behind the Industrial Select Sector SPDR (NYSEArca: XLI), an ETF that tracks a sector poised to deliver earnings growth inferior to that of XLF’s constituents.