Updated to note Tuesday's rally in the financial stocks. NEW YORK (TheStreet) -- Such courage was in short supply at the time but the fearless investor choosing to buy into the big banks while the markets were in freefall a year ago would by far have done best with Bank of America (BAC).

The stock plumbed its 52-week low of $3 on March 6, and it's soared nearly 460% since then based on last week's closing price of $16.70. The performance of the other bellwether financials on the same basis is impressive as well (See chart above), but perhaps the real message to be gleaned from this appreciation is what a challenge it will be for the group to put together a meaningful run-up from here.

The circumstances behind last year's extreme weakness were extraordinary so it's fair to say that the levels visited last March have an element of artificiality to them. After all, the lows were made when worries about the stability of the financial system itself were rampant. Still, looking back and seeing that five of these six companies (with Morgan Stanley ( BAC) being the laggard, rising a mere 82 percent off its low of $16.12 on March 9, 2009) have more than doubled in the past year does make one wonder what happens if the economy's recovery doesn't quite continue apace.

On the bear side of the ledger, fourth-quarter results were disappointing in general, stalling an early 2010 rally in the banks. Credit costs seem to have peaked but it's still not clear when the banks will get back to normalized earnings growth. Another lingering issue is what the new capital requirements will be going forward. Judging by the demands made by the government in order to allow the banks to pay back bailout funds, the target seems to be a Tier 1 common ratio of around 8%. But if the requirements are set higher, banks may need to sell even more stock to raise the necessary funds, subjecting existing shareholders to further dilution.

This month wraps up the end of the first quarter, and the reports from the big banks will start appearing in mid-April. Between dealing with the fallout of the CARD Act and heightened mortgage repurchase requests, there's certainly a chance that earnings could fall short of expectations.

Citigroup ( C), for example, is projected to break even for the period, which would be a strong improvement from its in-line loss of 33 cents a share in the fourth quarter. Goldman Sachs ( GS) is currently expected to earn $4.23 a share for the March period, but Rochdale Securities analyst Richard Bove cut his 2010 estimates for the company last week, citing a belief that the Greek debt crisis had slowed trading. If that turns out to be true, the competition will take a hit as well. M&A is tracking along with last year's hobbled pace, so investment banking operations shouldn't be counted on to deliver an upside surprise.

The banks have bounced back somewhat following their weakness in the wake of the fourth-quarter reports, and are currently outperforming the broad market in 2010. Following Monday's close, the Dow Jones Industrial Average was up 1.2%, while the KBW Bank Index ( BKX) had tacked on nearly 5%. If first-quarter numbers fall short and the executive commentary is cautious, the tempered optimism that's brought the stocks this far could run out.

Then again, financial stocks surged on Tuesday with formerly embattled names like Citigroup and American International Group ( AIG) led the charge. If Wall Street truly believes these companies, which are still dealing with significant levels of government involvement, have started to turn a corner then shares of the rest of the group stand to benefit as well.

-- Written by Michael Baron in New York.

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