The First Slice for Monday, October 11, 2021

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.

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.

The third-quarter earnings season — which kicks off this 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.

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

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 play into the major banks’ reports.

While the earnings season should be strong, there are likely to be some warning signs about inflation and supply constraints that could scare the market about the year-end set-up.

There was some foreshadowing of this last week, when Bed Bath and Beyond shares cratered 25% after the company said it saw a steep drop-off in traffic in August. Bed Bath & Beyond saw inflation costs escalating over the summer months, especially toward the end of its second quarter in August, which corroded profits.

What investors know going into the third quarter — from company guidance — is that there could be haves and have nots this earnings season.

FactSet data shows that 47 S&P 500 companies have issued negative earnings guidance for the third quarter, and 56 companies have issued positive outlooks.

The headline jobs number this past Friday was a major disappointment, as the economy added just 194,000 jobs in September, well below 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.

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

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