Financials Gain Ground as Tech Stumbles — Opportunities in Options
By John Nada·Jul 10, 2026·4 min read
Financials trade at 15.5 times forward earnings, signaling opportunity. Options on sector indices are appealing amid low implied correlation.
The Financial Select Sector Index currently trades at roughly 15.5 times forward earnings, according to CNBC Business. This metric is a significant discount from 2024 levels, making it an appealing consideration for investors. The index reflects a sector that has tripled its adjusted earnings per share over the past decade. With earnings season approaching, expectations are rising for positive revisions, bolstered by improving credit conditions, enhanced capital markets activity, and favorable net interest dynamics.
Earnings season kicks off next week, led by the major banks, which often act as bellwethers for the broader financial sector. This period offers a potential catalyst for financials, which have shown an improving relative rotation versus the broader market over the past four weeks. While tech, long the market leader, has seen its momentum flatten out and weaken over the past three weeks, financials are emerging as a sector of interest. This shift is not instantaneous; relative strength develops over time and can sometimes provide false signals.
In the context of the current market dynamics, the financial sector's forward earnings multiple of 15.5 is notably appealing. Although not the lowest ever recorded, this valuation is more attractive when considering the sector's performance in tripling its adjusted earnings per share over the last decade. Positive revisions to forecasts are anticipated if the current trends in credit, capital markets activity, and net interest dynamics continue, potentially enhancing the sector's attractiveness.
The past two years have seen AI dominate as the hot trade, characterized by a stock-picking exercise where investors needed to discern between winners and losers. Hardware has notably outperformed software and services. In contrast, investing in financials does not require such precise stock selection. They represent a more straightforward investment in nominal economic growth. Investors do not need to identify the winning stock or sift through the complexities of the tech sector. Instead, they can focus on the collective potential of financials as a sector.
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Options traders are attuned to the concept of implied correlation, which is currently low. This presents a more cost-effective opportunity for options on baskets of stocks such as the NDX and SPX compared to individual stocks. CNBC Business notes that with the Financial Select Sector SPDR (XLF) trading near $55.50, the August 56 calls can be purchased for approximately $1, offering six weeks of exposure through the heart of earnings season. This strategy provides an efficient way to play broader market movements without the need for selecting individual stocks.
The low implied correlation makes this an opportune time to consider options on sector indices. When implied correlation is high, options on baskets are expensive relative to the stocks within them, but when it is low, as it is now, options on indices are a better deal. This dynamic favors buying options outright on ETFs rather than employing complex spreads or trading individual stocks.
With the Financial Select Sector SPDR (XLF) trading at approximately $55.50, the August 56 call options, priced at roughly $1, represent less than 2% of the ETF's price. This provides a relatively inexpensive way to gain exposure to the sector during a crucial period in the earnings season. Investors can benefit from this low-cost strategy, capitalizing on potential movements in the financial sector without the complexities of stock selection.
As the market anticipates the forthcoming earnings season, financials are capturing attention in a landscape previously dominated by tech's AI narrative. The straightforward nature of financials' performance relative to economic growth offers an attractive option for investors seeking clarity amidst the complexities of technology investing. In this environment, the financial sector stands poised to challenge the long-standing dominance of technology, offering opportunities for those looking to leverage the sector's collective strength without the need for intricate stock-picking strategies.