While apprehensiveness ahead of the third-quarter earnings season permeated the air, the U.S. regional banking sector has proven doubters wrong, at least according to JPMorgan Chase analyst Anthony Elian. With small-to-middle-capitalization banks posting better-than-expected financial results, the underlying ecosystem stands poised for potentially sustained growth.

As the one-week mark of the Q3 earnings season passed, seven of the regional banks which JPMorgan covers disclosed their results, with five of them beating analysts’ bottom-line expectations. As Benzinga’s Piero Cingari mentioned, the “primary driver behind these beats was stronger-than-expected net interest margins (NIM) and net interest income (NII).”

What’s more, several key metrics for U.S. banks boded well for the broader economy. “Average deposits increased at a 7% annualized rate, while average loans grew by 2% annually. On a period-end basis, deposits rose at an even stronger 11% annualized pace, and loans increased by 3% annually. Importantly, NII expanded at a robust 12% annualized rate,” wrote Cingari.

To be fair, not every element fared well. In particular, a few banks reported a lift in non-performing assets (NPA) due to headwinds associated with office loans. However, the space has improved considerably from the lows of last year’s regional banking crisis. In addition, experts point to the sector still trading below historical valuations.

The DPST ETF: For bold investors wanting to speculate on the long side of the regional banking narrative, financial services specialist Direxion offers a risky but compelling leveraged exchange-traded fund. The Direxion Daily Regional Banks Bull 3X Shares DPST seeks daily investment results equivalent to 300% of the performance of the S&P Regional Banks Select Industry Index.

Primarily, the DPST ETF brings to the table leverage in a convenient format. While traders can use options for leveraged transactions, such strategies can be complicated. With this 3X fund, investors can pick up individual units much like regular stocks. Moreover, the Daily Regional Banks Bull 3X Shares covers a wide range of individual banks, such as Regions Financial Corp RF and M&T Bank Corp MTB.

It’s important to note, though, that DPST is wildly choppy. In addition, it’s critical that investors do not hold leveraged ETFs for periods lasting longer than one day. Otherwise, the daily compounding of volatility could lead to gradual value erosion.

The DPST Chart: Although the DPST fund got off to a rocky start this year, it found its footing in the back half, gaining almost 70% in the trailing six months.

• The 3X ETF popped over 8% in late-afternoon trading Monday, buoyed by the Dow Jones and improved sentiment for the economy.
• Since approximately mid-June, DPST has been charting a series of higher lows, further underscoring the net-positive fundamental outlook.
• However, traders should keep an eye on volume levels, which generally have been fading since July.

Featured photo by 3D Animation Production Company from Pixabay.