Stock market on comeback trail heads into what’s supposed to be

Stocks proved hard to keep down this week and next week’s earnings reporting season start could further bolster the comeback if profits roll in as expected or better.

The major averages are heading for a winning week after overcoming a debt ceiling debacle in Washington. Ultimately, lawmakers passed a short-term deal that will extend the debt ceiling until December, kicking that overhang for the market down the road.

Add surging oil prices and a disappointing jobs report to the list of other big worries overcome by this week’s price action, with investor buying up bank and energy shares.

“In the face of Washington drama, delta worries, multi-year highs in crude oil, and a much weaker than expected jobs number, you have to be impressed by how stocks were able to bounce back this week,” said Ryan Detrick, chief market strategist at LPL Financial.

A market pullback that began in September brought the S&P 500 down more than 5% from its record at one point on Monday, before stocks mounted a comeback. For the week, the S&P 500 added back about 1% and sits just 3% away from its record.

Goldman Sachs early this week stuck by its bullish year-end forecast, predicting stocks would start to climb the wall of worries. And they did.

Goldman’s chief U.S. equity strategist David Kostin said in a note to clients that his year-end S&P 500 price target for 2021 is still 4,700, which is nearly 7% above its current level.

Goldman said earnings growth, not valuation expansion, was the primary driver of the 17% S&P 500 equity return year-to-date and that should continue to be the case.

Earnings season — which kicks off next week with big bank earnings — is expected to be another strong series of reports, despite some worries about supply chain issues and higher costs. For the third quarter, S&P 500 earnings growth is expected to rise 27.6% year-over-year, according to FactSet. That would be the third-highest growth rate since 2010.

“We’ve seen some record earnings seasons the past few quarters, so all eyes will be on if earnings can help justify stocks near all-time high levels,” said Detrick. “We do expect another solid earnings season, but we’ve seen some high profile warnings already, so corporate America could have a rather high bar to clear this quarter. Buckle up.”

Banks earnings are the main focus next week with JPMorgan, Bank of America, Morgan Stanley, Citigroup and Goldman Sachs set to report next week.

After a range-bound few months for bank stocks, analysts are looking ahead to catalysts that could fuel the next phase in their recovery. Wall Street expects loan growth, interest rates and reserve releases to all play into the major banks’ reports.

“Earnings for the third quarter quarter should again be strong and mostly outpace expectations,” said Jim Paulsen, Leuthold Group chief…