Bullish Goldman note on banks lifts US shares ahead of earnings season

US&nbsp;STOCKS surged yesterday after investment bank Goldman Sachs upgraded the banking sector to &ldquo;attractive&rdquo; from &ldquo;neutral&rdquo; ahead of the third-quarter earnings season that kicks off tomorrow.<br /><br />Wall Street shrugged off a four-day losing streak after Goldman issued a note saying that while the big banks&rsquo; earnings have surged by nearly 40 per cent this cycle their share prices do not reflect their earnings potential.<br /><br />&ldquo;The market has failed to recognise the dramatic improvement in earning power at the large banks versus the regionals,&rdquo; Goldman analysts said, keeping their &ldquo;cautious&rdquo; view on regional banks.<br /><br />Tangible assets per share have risen 29 per cent for large banks compared with a 25 per cent fall for regionals, while pre-provision earnings per asset have increased seven per cent for large banks versus a 14 per cent fall for regionals.<br /><br />Goldman upgraded Wells Fargo to &ldquo;buy&rdquo;, saying it was the &ldquo;big winner&rdquo; in this cycle as its tangible assets per share have risen sharply by 70 per cent in the second quarter of 2009 compared to 2007. The bank&rsquo;s shares shot up by over seven per cent to $28.13. Capital One Financial, which was also upgraded, gained over eight per cent to $35.93.<br /><br />Alcoa jumped five per cent to $13.47, ahead the miner&rsquo;s results tomorrow, the first in a raft of results pencilled-in over the coming weeks.