Each night in our Sector Snapshot, we show each sector’s P/E ratio as a percentile of their respective ten-year range. Given their surge in the final months of 2021, by far the most elevated valuations (as measured by the trailing P/E) are for defensive sectors like Consumer Staples and Utilities as well as Tech. Each of those is in the top one or two percentiles of their ten-year ranges. Conversely, Financials, Energy, and Materials have much less elevated multiples relative to their own ranges. Financials is the most extreme of these currently in the just the 39th percentile.

Below we show the spread in valuation between the averages (both in equal weight and sector weighted) for the P/E ratios for all defensive sectors (Consumer Staples, Health Care, Real Estate, and Utilities) versus all cyclical sectors (Communication Services, Consumer Discretionary, Energy, Financials, Industrials, Materials, and Technology). For this analysis, P/E ratios are expressed as z-scores or standard deviations from the historical norm. The picture shows that while defensive sectors have seen their valuations rise relative to cyclicals in a significant way, compared to the rest of history, it is not exactly extreme on either an equal weight or market-cap-weighted basis.