Indeed, Paulsen said the direction of yields will be a critical metric by which to gauge bank performance.
Should the benchmark 10-year Treasury note break above 2.6 percent, the sector stands to benefit, he said. The road will be different under lower bond yields, in which case earnings will take more prominence.
“I think we break out [on yields]. If we do, they’ll be OK,” Paulsen said. “Some of the sales have been weak, but that would be helped if you can raise the yield structure and steepen the curve again.”
That yield dynamic has created some uncertainty in the market lately. While Federal Reserve officials have indicated their desire to bring interest rates back to levels closer to historical norms, the inflation numbers have not been cooperating.
Consumer price index data Friday showed surprisingly weak pricing pressures, with June prices unchanged. The Fed is determined to bring inflation back up to 2 percent annualized, but the CPI now points to just a 1.6 percent reading.
However, Kevin Quigg, chief strategist at ACSI Funds, said the sector has other factors in its favor.
“The industry as a whole is in very good shape. Everyone passed the stress test for the first time in seven years,” Quigg said, referencing the exams banks must pass to show that they can withstand another financial crisis. Each bank involved in the tests received approval for their plans to distribute capital to shareholders.
“There’s also deregulation. There certainly will be a look into regulations. That’s a real tail wind for the industry,” added Quigg, whose fund has positions in Citi, JPMorgan and Wells Fargo.
To be sure, not everyone is a fan.
Kevin O’Leary, who runs the O’Shares ETF family and is a judge on ABC”s “Shark Tank,” a program that also is syndicated on CNBC, believes the big bank stock run is at least taking a break for a while.
“This is the pause that refreshes going forward,” O’Leary said on “Fast Money Halftime Report.” He pointed to comments from JPMorgan CEO Jamie Dimon earlier in the day expressing frustration with the slow pace of fiscal reforms in Congress.
“In his words are caution,” O’Leary said. “I think if you’re looking for what’s going to make things work in financials, you don’t have to own banks.”
WATCH: O’Leary explains why he doesn’t like banks.