The kick-off of earnings season Tuesday was a tale of both winners and losers on Wall Street as a number of blue-chip companies reported both profit and revenue that beat expectations, while a couple notable banks fell surprisingly short.
Once known as Wall Street’s golden boy, given its dominance in the trading and investment banking arenas, Goldman Sachs Group Inc.’s GS, +0.50% third-quarter results show how even the mighty can fall during what Chief Executive David Solomon called a “mixed operating environment.”
Goldman’s stock rose 0.3% in afternoon trading to underperform the Dow Jones Industrial Average’s DJIA, +1.03% 1.1% rally, as revenue topped the FactSet consensus estimate but profit fell below forecasts, amid weakness in its investment banking and investing and lending businesses.
Within investment banking, equity underwriting fell 11% from a year ago, which Goldman said reflected “a significant decline in industry-wide initial public offerings.” That might not sound so bad as stock market volatility spiked mid-quarter, but fellow Dow Jones Industrial Average component J.P. Morgan Chase & Co. JPM, +3.29% said the exact opposite.
J.P. Morgan reported third-quarter profit, revenue and net interest income (NII) that beat estimates, sending the stock surging 4% toward a record high. The blue-chip bank’s Chief Financial Officer Jennifer Piepszak said on the post-earnings conference call with analysts, according to a FactSet transcript, that equity underwriting results soared 22% amid a “strong” performance in IPOs, boasting that the bank “significantly” outperformed its peers.
Goldman’s also suffered from some bad stock bets, an area the bank used to excel. Revenue in equity securities plunged 40% to $662 million, which Chief Financial Officer Stephen Scherr said was because of, to put it mildly, a “reduction in market value on our public investment portfolio.”
“Expectations for Goldman Sachs this quarter were already low, but the bank failed to deliver even on these revised forecasts, stumbling in areas where rival J.P. Morgan Chase just announced far more favorable results,” said Octavio Marenzi, CEO of capital markets management consultant Opimas.
Marenzi said most troubling was Goldman’s troubles in investing and lending, which had previously frequently “carried the day” in previous quarters. “Here, [Goldman] uncharacteristically stumbled badly, with bets on WeWork and other unicorns turning sour,” Marenzi said.
Meanwhile, Citigroup Inc. beat profit and revenue expectations, sending the stock up 1.5% toward a fifth straight gain, while Wells Fargo & Co. profit fell well below expectations although revenue rose more than projected to push the stock up 2.8%.
UnitedHealth Group Inc. UNH, +8.35% was the big winner, however, as the stock soared 7.7% to pace the Dow’s and S&P 500’s gainers.
The health services company’s stock had slumped 10.9% during the third quarter, compared with a 1.2% rise in the Dow, amid uncertainty over the political landscape ahead of the 2020 elections and increasing competition.
After beating profit and revenue expectations and raising its full-year revenue, however, the shares headed toward the biggest one-day percentage gain in 8 ½ years, and the biggest price gain since the company went public 35 years ago.
Also in the health care sector, Dow components Johnson & Johnson JNJ, +1.77% also impressed, as the stock rallied 1.9% after earnings rose more than expected. Total revenue also beat forecasts, as consumer, pharmaceutical and medical devices results all beat.
And like its blue-chip peer UnitedHealth, J&J also raised its full-year earnings guidance.
Meanwhile, the unofficial start of earnings season hasn’t changed the outlook for the earnings recession that started in the second quarter to continue into the third. S&P 500 EPS is projected to decline 5.0% from a year ago, according to FactSet, compared with expectations of a 0.6% decline as of the start of the third quarter.
Coming up this afternoon
The earnings line up is relatively light after the closing bell, as companies scheduled to report results include J.B. Hunt Transport Services Inc. JBHT, +1.65% , United Airlines Holdings Inc. UAL, +1.24% and Interactive Brokers Group Inc. IBKR, +0.87%
United and Interactive Brokers are expected to report year-over-year increases in third-quarter EPS, while J.B. Hunt is expected to report a decline.