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Market Preview: A Flying Start

NEW YORK ( TheStreet) -- After taking investors on a roller-coaster ride to nowhere in 2011, the S&P 500 is off to a flying start so far this year.

After a smart gain on Tuesday, the index is up 2.7% on a price basis, and its intraday high of 1296 was the best level seen since early August, just ahead of the volatility brought on by the first-ever downgrade of the United States' credit rating by Standard & Poor's. The close at 1292 is the highest since late July.

There are still plenty of hurdles to clear of course with more debt auctions for Italy and Spain probably the most daunting in the near term, but with all the talk of a low expectations for fourth-quarter earnings, the bulls seem set up to make some hay over the next few weeks if the headlines go according to plan, always a big if.

Typically though, seven out of 10 S&P 500 companies beat analyst earnings expectations each quarter, and since 20% of the companies in the index have already warned about their results, their estimates have been come down accordingly. Sounds like a recipe for a rally.

Then again, most roller-coaster rides tend to start out with slow climbs higher in order to set up some momentum for the twists and turns to come.

Now that Alcoa's (AA) report is out of the way, Wall Street's attention will quickly turn to the big banks, who will start reporting with JPMorgan Chase (JPM - Get Report) on Friday morning, followed by Citigroup (C) and Wells Fargo (WFC - Get Report) on Jan. 17 (next Tuesday), Goldman Sachs (GS) on Jan. 18, and Bank of America (BAC) and Morgan Stanley (MS) on Jan. 19.

Goldman is semi-bullish on the prospects for its brethren, arguing that a lack of negatives presents a mild positive for the group. Yes, that's what it's come to for the financials, who have already staged a bit of a stealth rally in 2012 with the KBW Bank Index up 7% through Monday's close at 42.08 before tacking on another 1.9% to close at 42.86 on Tuesday.

"Low rates and GDP growth continue to present a challenging environment for bank stocks," Goldman said in a research note Tuesday. "That said, this year brings lowered earnings expectations, reduced European counterparty risk (as a result of the LTRO [long-term refinancing operation]) and improved capital clarity. Valuations and mutual fund positioning should provide some downside support."
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