The financial sector has recently seen valuations climb to multi-year highs, far outpacing the underlying earnings growth of many major players. Some companies now trade at P/E multiples last seen before significant market corrections, despite modest profit expansion. In this environment, even high-quality firms can face steep declines if expectations shift. This article breaks down three NYSE financial stocks whose current prices may be pricing in too much optimism and too little risk.

The financial sector has been one of the best-performing segments of the U.S. market over the past year. Banks, investment houses and other companies tied to executing financial transactions have benefited from a combination of higher interest rates and continued strong economic activity in the US. Investors gradually increased the valuations of these companies over the course of the year. However, for many titles, multiples have reached levels that historically have been more consistent with technology…