interest rates have risen and they aren’t likely to reverse course soon that should eventually unlock a rally in bank stocks which typically benefit from higher rates the federal reserve’s campaign to tackle high inflation—by way of shortterm interest rate increases—has driven longdated bond yields higher as well for instance the 10year treasury yield has climbed to about 39 from below 06 at its the low point during the pandemic era the 30year treasury yield now stands just under 4 that’s a positive for banks higher longdated bond yields typically boost bank revenue—as long as the number of loans issues remains steady or grows while there’s been speculation in markets that the fed will stop raising rates at some point this year the federal funds futures market projects the central bank won’t actually cut rates until the end of this year at the earliest if shortterm rates stabilize this year around or above their current elevated levels that should provide an environment for bank stocks to gain bank of america says “us banks are a good place to be if rates are higher for longer” bank of america strategists wrote in addition bank stocks remain at attractive levels since oct 12—the low for the sp 500 ‘s most recent bear market— the spdr sp bank exchangetraded fund ticker kbe has risen about 7 while the broader market index has climbed 12 that leaves the bank etf trading at 93 times forward earnings an almost 50 discount to the sp 500’s 181 times according to factset just five years ago banks were trading at a slimmer 20 discount to the market that means bank shares are arguably cheap and might have room to let earnings growth take them higher wells fargo  for one trades at 94 times expected pershare earnings over the next 12 months that’s a near 50 discount to the sp 500 while the stock has traded at a much smaller discount in the past based on a historical correlation between treasury yields and bank stocks bank shares should have rallied more in recent months than they actually have bank of america data show that according to the historical correlation between sp 500 bank stocks and treasury yields bank stocks—in aggregate—should have outperformed the broader index in the past year or so which hasn’t happened that means bank stocks likely have room to outperform the sp 500 from here to be sure aggregate 2022 pershare earnings for companies in the spdr sp bank etf—which counts citigroup c wells fargo wfc and many smaller banks as holdings—are expected to decline slightly year over year according to factset that’s because higher shortterm interest rates paid to savers and that banks pay to their own lenders aren’t helping profits and credit losses are expected as well but analysts expect revenue and earnings growth throughout 2023 and 2024 with annualized pershare earnings growth estimates landing at 6