U.S. bank stocks are approaching their highs, and they may continue to rise further due to earnings season or expectations.

As major U.S. banks officially kick off the earnings season this week, strategists point out that the current market's conservative attitude towards Wall Street profit expectations may create favorable conditions for continued strong performance of bank stocks. Recently, the banking sector has seen significant gains, with the KBW Bank Index, covering 24 institutions including JPMorgan Chase (JPM.US) and Citigroup (C.US), rising approximately 37% since its April low and currently nearing historic highs. This increase not only surpasses the performance of the S&P 500 index during the same period, but also exceeds the Nasdaq 100 index, which is primarily tech-focused, by about 31%. It is worth noting that there is a significant earnings expectation gap for financial stocks in the market. Bloomberg industry research data shows that while the financial sector is expected to contribute 18.6% of the overall earnings of the S&P 500 index, its current weight in the index is only 13.7%, a gap that exceeds the index's average level over the past 15 years. Analysts on average predict a roughly 1% year-on-year decline in earnings for the S&P 500 Financials Sector Index in the second quarter. Bloomberg strategists Gina Martin Adams and Michael Casper pointed out in their report, "Investors are generally cautious about earnings expectations for financial stocks, which means that if actual profit performance exceeds expectations, there is still room for the sector to go higher." This week will see several heavyweight banks reporting earnings, with JPMorgan Chase, Citigroup, and Wells Fargo & Company (WFC) set to announce their results on Tuesday, and Goldman Sachs Group, Inc. (GS.US), Morgan Stanley (MS.US), and Bank of America Corp following later in the week. Improved regulatory environment is an important positive factor supporting the sector, with KBW analyst Christopher McGratty believing that the banking industry is experiencing a "significant positive regulatory shift," with large institutions like JPMorgan Chase and Bank of America Corp being major beneficiaries of policy easing. With the Federal Reserve completing stress tests this month, the market widely expects banks to update their capital management plans, including potentially increasing stock buyback sizes. The potential weakening of the Basel III international capital rules will further release capital flexibility. Expectations of growth in trading business income also boost market confidence, with some companies experiencing record trading volumes after the announcement of the April Trump administration's tariff policy "Liberation Day." However, the sector still faces multiple challenges: the future 12-month price-to-earnings ratio of the S&P 500 Financials Sector Index is about 17 times, higher than the 10-year average of 14 times. Specific impacts of the trade war on bank earnings, uncertainties in the Fed's interest rate cut path, and potential fluctuations in consumer credit quality all pose downside risks. HSBC earlier this month downgraded JPMorgan Chase, Goldman Sachs Group, Inc., and Bank of America Corp ratings citing "macroeconomic uncertainty." However, supporters believe that regulatory easing and profit growth will drive the sector to continue upward. Wells Fargo & Company analyst Mike Mayo stated: "Current stock prices do not fully reflect the potential for improvement in industry fundamentals." This strategist, who accurately predicted the rebound of financial stocks in early 2023, emphasized that with multiple positive factors, bank stocks still have upward momentum.