JPMorgan Chase earnings are about to be released, and the market widely expects the financial sector to support approximately one-fifth of the S&P 500's profits. Behind this expectation, the bond market is telling an interesting story.

Recently, the yield curve has begun to steepen. This seemingly technical change represents real positive news for the banking system. When the curve steepens and the spread between long-term and short-term interest rates widens, banks' net interest margins expand accordingly — this directly means they have more profit space from lending. Combined with currently active M&A activity, investment banking underwriting and advisory businesses can also get a piece of the pie.

The problem lies at the other end. Credit quality remains a hidden concern. If the labor market continues to cool and unemployment rises, the spillover effects will manifest in rising non-performing loan ratios. This could offset the earnings growth brought by net interest margin expansion. In simple terms, the performance of financial stocks depends on the degree of a soft landing in the economy — enjoying the dividend from the interest rate structure while avoiding the bullet of deteriorating employment.