The Breaking News All this takes us back to today's opportunity in large U.S. financial stocks. In early 2020, in response to the COVID-19 pandemic, the Fed capped banks' dividends. It also banned banks from using precious capital to buy back their shares. That all changed last week. On Thursday, the Fed announced the results of the financial sector's annual stress tests. These stress tests are required under the Dodd-Frank Act, passed after the global financial crisis of 2008. Twenty-three banks - including JPMorgan Chase (NYSE: JPM) and Goldman Sachs (NYSE: GS) - underwent stress tests. These tests model the financial impact of a handful of doomsday scenarios. The scenarios included a U.S. stock market crash, a collapse in economic output and a distressed commercial real estate market. This year's tests concluded that the largest U.S. banks could withstand $474 billion in losses from loans and other positions... And even then, they would have more than double the required capital. As a result, the Fed further loosened restrictions on banks' dividends and buybacks. That, in turn, paved the way for billions of dollars to be returned to investors. Barclays analysts estimated the median bank of the 20 institutions it covered would return more than 100% of its earnings to shareholders over the next year. For a bank to return the total of its annual profits over a single year is almost unheard of. Profiting From the Bank Buyback Bonanza So how can you profit from these looming bank share buybacks? I see three broad options... First, you could buy the stocks of the major banks that announce buyback programs in response to the loosening of restrictions. JPMorgan already took the lead when it unveiled a $30 billion share repurchase plan in December. No doubt it will add to that amount in the coming months. Second, you could buy an exchange-traded fund (ETF) that is focused on the major banks - like the Financial Select Sector SPDR Fund (NYSE: XLF). Finally, you could place a leveraged bet on the financial sector through the Direxion Daily Financial Bull 3X Shares ETF (NYSE: FAS). This ETF tracks the Russell 1000 Financial Services Index, a subset of the Russell 1000 that consists of large cap U.S. financial companies. But it does so with triple leverage. The chart above compares the year-to-date returns of the S&P 500, the Financial Select Sector SPDR Fund and the Direxion Daily Financial Bull 3X Shares. Even a casual glance shows the remarkable impact of triple leverage on an investor's returns. Still, it's best to think of triple-leveraged ETFs as short-term tactical instruments. The Direxion fund rebalances daily, so returns can vary significantly due to triple exposure to its underlying index over longer periods. Nevertheless, the returns in a bull market are difficult to resist. My advice? If you want to profit in the most straightforward way from the banking buyback bonanza of 2021, take a look at the Financial Select Sector SPDR Fund. The tailwind of buybacks in the banking sector should help ensure that it continues to outperform the S&P 500. If you want to swing for the fences, consider a smaller investment in the Direxion Daily Financial Bull 3X Shares. But if you do, strap yourself in for a volatile ride. Good investing, Nicholas | 
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