Financial stocks are off to their worst yearly start in a decade. How to spot value.

MarketWatch

by Philip van Doorn

February 24, 2026

AI-Generated Deep Dive Summary

The financial sector within the S&P 500 is experiencing its poorest start in over a decade, raising concerns among investors. This downturn presents an opportunity to analyze which companies might be undervalued and poised for recovery. A recent screen of the sector highlights firms with strong returns on equity but low price-to-earnings (P/E) ratios, signaling potential value investments. One group particularly impacted this year is business development companies (BDCs), which are nonbank lenders serving small- to medium-sized businesses. While BDCs themselves aren’t part of the S&P 500, some asset managers that invest in them are included in the index. This segment has been hit hard due to rising interest rates and economic uncertainties, making it a key area for investors to monitor. Understanding how BDCs are valued is crucial for those interested in this sector. Their performance often depends on factors like borrowing costs, default rates, and the strength of their underlying assets. For investors, this means conducting thorough research to identify resilient companies that may offer attractive returns despite current market challenges. This situation matters because it highlights the importance of identifying undervalued opportunities in stressed markets. Investors can leverage the sector’s high returns on equity and low P/E valuations to make informed decisions, potentially capturing gains as the market rebounds. Staying attuned to these dynamics is essential for those looking to capitalize on current market conditions.

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Originally published on MarketWatch on 2/24/2026