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Additional Reading from MarketBeat Media 2026 Sector Playbook: 3 Sectors Trading Below Fair ValueBy Chris Markoch. First Published: 1/1/2026. 
Quick Look - Sector rotation into financials, industrials, and utilities could continue in early 2026 if crowded growth trades cool off.
- Sector ETFs can work, but stock selection may offer better value where forward valuations sit below sector norms.
- Rate expectations, capex trends, and data center power demand are three practical catalysts to watch across these sectors.
As we kick off 2026, the sector rotation that began in December 2025 is likely to continue. Many investors think several of 2025's top performers — notably artificial intelligence (AI) names — are overvalued. That concern goes beyond the idea of an AI bubble and reflects broader valuation worries. Many growth-oriented technology stocks appear expensive and may need a correction before their valuations look attractive again. Amazon's Layoffs Were Just the Beginning
Amazon just slashed 30,000 jobs – the largest layoff in its history – and almost no one's talking about the real reason why. A former hedge fund manager says it's part of a much bigger shift. One that could reshape how we all work, invest, and build wealth in the years ahead. He's spent the last decade preparing for this moment... and just released something that could help everyday Americans get ahead, while there's still time. Full story here As money rotates out of tech, investors will look for sectors trading below fair value. Three sectors worth considering are financials, industrials and utilities. It has been a stock-picker's market, so some names in these sectors have already performed well and could continue to rally into 2026. At the same time, there are other companies still trading at attractive valuations versus their sector and the broader market. Focusing on individual names gives investors a chance to outperform some of the sector ETFs. Financials: Lower Rates Could Unlock Undervalued Bank Stocks in 2026 Financial stocks are positioned to do well in 2026 regardless of the interest-rate path. That said, markets are leaning toward at least one rate cut in the first half of 2026, which would likely boost economic activity and support bank earnings. One simple way to gain exposure is the Financial Select Sector SPDR Fund (NYSEARCA: XLF), which rose roughly 13% in 2025 but lagged the S&P 500. The fund holds many best-in-class names such as JPMorgan Chase & Co. (NYSE: JPM) and Berkshire Hathaway (NYSE: BRK.B). Those larger names trade at or slightly above the sector's forward price-to-earnings (P/E) ratio of about 16.5. Alternatively, investors can target undervalued bank stocks such as Bank of America (NYSE: BAC), Capital One Financial Corp. (NYSE: COF) and PNC Financial Group Inc. (NYSE: PNC), which may offer better value relative to peers. Industrials: Capex Revival and Infrastructure Demand Point to Upside Industrial stocks were among the hottest performers in the first half of 2025 but cooled in the back half, a trend visible in the Industrial Select Sector SPDR Fund (NYSEARCA: XLI). Industrials could again outperform in 2026 if lower rates spur capital expenditures and boost infrastructure spending. The XLI ETF is up about 18%, roughly in line with the S&P 500. Many top holdings trade above the sector P/E average of around 24x, which itself is higher than the S&P average. Still, value can be found in several names that trade below the sector average, including Boeing Co. (NYSE: BA), Union Pacific Corp. (NYSE: UNP) and Honeywell Intl. (NASDAQ: HON). Utilities: A Quiet Value Play Powered by Data Center Energy Needs The utilities sector is another place to hunt for value in 2026. The Utilities Select Sector SPDR Fund (NYSEARCA: XLU) finished 2025 up roughly 13%, underperforming the broader market partly because of a 5.5% pullback in the final month of the year. Utilities should benefit from rising demand from data centers and the need to modernize aging electric infrastructure. The sector's average forward P/E is around 18x. Several utilities trade at or below that level, including Exelon Corp. (NASDAQ: EXC), Pacific Gas & Electric (NYSE: PCG) and Algonquin Power & Utilities Corp. (NYSE: AQN). Bottom line: as investors rotate out of richly valued tech stocks, selective buying in financials, industrials and utilities that trade below their sector averages could offer attractive opportunities in 2026.
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