Today on Yahoo Finance's Good Buy or Goodbye, Host Julie Hyman welcomes Interactive Brokers chief strategist Steve Sosnick to discuss the financial sector, where he explains his preference for regional banks over major financial institutions. Sosnick recommends investors buy the S&P Regional Banking ETF (KRE). He emphasizes that the steeper yield curve particularly benefits smaller banks, explaining "the steeper the yield curve, the bigger the differential between what they're borrowing versus what they're lending," which directly improves their bottom line. The ETF also offers more attractive valuations compared to the the Financial Select Sector SPDR Fund (XLF), with Sosnick noting "it's time to shift toward the one that's showing good momentum." Furthermore, he points to improving sentiment around commercial real estate lending, observing there are "fewer and fewer horror stories" in the sector. Regarding the Financial Select Sector SPDR Fund (XLF), Sosnick expresses several concerns. He notes its elevated valuation after being "on a tear," and advises investors to "look a little more broadly than just the leaders." The fund's concentration is another worry, with just four stocks making up about a third of the holdings, and it's "not top heavy with banks." Additionally, he points out the fund's exposure to consumer spending, suggesting potential underperformance if consumer activity slows.
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