The Consumer Discretionary sector has outperformed the market by more than 5 percent this year, and it has now become the sector with the highest price-to-earnings ratio in the S&P 500. So is it time for investors to exercise some discretion of their own—and take profits?
FactSet reports that the Consumer Discretionary sector finished May with a forward 12-month price-to-earnings ratio of 16.9. That makes it the sector for which investors are willing to pay the most for the expected earnings over the next 12 months.
Consumer Discretionary takes the mantle of highest-valued sector from Telecom Services, which enjoyed a 18.2 P/E at the end of April. But in what could be considered a bad omen, the Telecom Sector suffered a 7.4 percent drop over the month of May, while Consumer Discretionary stocks rose by 2.4 percent.
"As a result, the forward 12-month P/E ratio for the Consumer Discretionary sector jumped to 16.9 from 16.7 last month, while the forward 12-month P/E ratio for the Telecom Services sector dropped to 16.6 from 18.2 over this time frame," FactSet senior earnings analyst John Butters wrote in a Friday note.