November 30, 2021

StrategisChhr

Skillful Business Crafters

Stock market on comeback trail heads into what’s supposed to be another stellar earnings season

A specialist trader works inside a booth on the floor of the New York Stock Exchange (NYSE) in New York City, October 6, 2021.

Brendan McDermid | Reuters

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

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

This week’s price action also overcame surging oil prices and a disappointing jobs report, with investors buying bank and energy shares.

“In the face of Washington drama, delta worries, multiyear 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,” LPL Financial chief market strategist Ryan Detrick said.

A market pullback that began in September brought the S&P 500 down more than 5% from its record at one point Monday, before stocks mounted a comeback. For the week, the S&P 500 added back 0.8% and sits just 3.4% away from its record.

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

Goldman 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.

The firm said earnings growth, not valuation expansion, was the primary driver of the S&P 500’s 17% return year to date, adding that should still be the case.

Earnings season begins

The third-quarter 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. Third-quarter earnings are expected to have risen 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,” Detrick said. “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.”

Stock picks and investing trends from CNBC Pro:

Supply chain, higher cost warnings?

Fed headwind ahead?

The headline jobs number Friday was a major disappointment, as the economy added just 194,000 jobs in September, well below the the Dow Jones estimate of 500,000. On the positive side, the unemployment rate fell to a much lower point than economists forecast. At 4.8%, that’s the same level seen in late 2016.

It’s unclear if the number changes the calculus for when and how fast the Federal Reserve will slow its $120 billion-per-month bond-buying program.

“In our view these figures are good enough, and when combined with the debt-ceiling can being kicked down the road, likely solidifies November as ‘go time’ for tapering,” Wells Fargo Securities senior equity analyst Christopher Harvey said.

“We continue to expect a choppy equity market rally and a two-to-four-week tech bounce, but the bounce probably peters out next month when the Fed says those magical words: We will begin to taper,” he added.

Week ahead calendar

Monday

(Bond market closed)

Tuesday

6:00 a.m. NFIB Small Business Index

10:00 a.m. JOLTS Job Openings

Earnings: Fastenal

Wednesday

8:30 a.m. CPI

2 p.m. FOMC Minutes

Earnings: JPMorgan Chase, BlackRock

Thursday

8:30 a.m. PPI

8:30 a.m. Weekly jobless claims

Earnings: Bank of America, Morgan Stanley, Citigroup, Walgreens Boots Alliance, Wells Fargo, Domino’s Pizza, U.S. Bancorp, UnitedHealth

Friday

8:30 Retail Sales

10:00 a.m. University of Michigan Consumer Sentiment

Earnings: Goldman Sachs, J.B. Hunt, PNC Financial

— with reporting from CNBC’s Michael Bloom.

https://www.cnbc.com/2021/10/08/stock-market-on-comeback-trail-heads-into-whats-supposed-to-be-another-stellar-earnings-season-.html