Stocks rebounded Tuesday from last week's sell-off as investors were cheered by positive earnings reports. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both gained more than 2%.
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Investors snapped up technology shares that had taken a beating recently, with the First Trust Dow Jones Internet ETF (NYSEMKT:FDN) surging 3.4%. Healthcare stocks also had big gains; the Vanguard Health Care ETF (NYSEMKT:VHT) closed up 3.1%.
Morgan Stanley profits from increasing IPO activity
Shares of Morgan Stanley rose 5.7% after the bank reported third-quarter results that beat expectations by a wide margin. Revenue grew 7.3% to $9.87 billion and earnings per share jumped 26% to $1.17. Analysts were expecting earnings of $1.02 per share on revenue of $9.55 billion.
Strong activity in the initial public offering (IPO) market boosted Morgan Stanley's investment banking unit, which had a 12.6% increase in revenue and a 26% gain in pre-tax income. The company's wealth management segment delivered a 6.7% jump in pre-tax income on 4.2% revenue growth. Return on common equity was 11.5% in the traditionally weaker summer quarter, compared with 9.6% in the period a year ago.
CEO James Gorman was questioned on the conference call about the lagging stock price, which is down 11% this year despite some outstanding results. Gorman admitted he was perplexed about it, but said:
So what I care about, frankly, is the long-term positioning of the firm. This firm is positioned for resilience through cycles, that's exactly what we demonstrate in this quarter. To deliver $9.9 billion of revenue in a summer quarter that was unheard of a couple of years ago.
Morgan Stanley's stock may have also gotten a boost on news today that the bank may be an underwriter of one of next year's biggest IPOs. The Wall Street Journal (subscription required) reported that Morgan Stanley delivered a valuation proposal to Uber, a move that often happens before a bank is hired to underwrite the offering.
Johnson & Johnson reports healthy sales gains
Healthcare giant Johnson & Johnson reported strong third-quarter results, and shares rose 2%. Revenue grew 3.6% to $20.3 billion, beating the $20.05 billion analyst consensus. Excluding currency losses and the effects of acquisitions and divestitures, worldwide sales grew 6.1%. Adjusted earnings per share increased 7.9% to $2.05, above expectations for EPS of $2.03.
Sales in the U.S grew 3.6% and international sales were up 7.5%, excluding currency effects. As it has in recent quarters, sales gains by the pharmaceutical segment -- 8.2% on an operational basis -- led the company. Consumer sales were up 4.9%, which is a big improvement from recent quarters, and medical device sales lagged with 1.7% growth.
Looking ahead, Johnson & Johnson boosted its guidance for operational sales gains for the year to 5.5%-6%, up from 4.5%-5.5% previously. Adjusted EPS guidance was raised 4% at the midpoint to a range of $7.98 to $8.03.
"We are pleased with our strong third-quarter performance, which reflects continued above-market growth in our Pharmaceutical business, accelerating sales momentum in our Consumer business and consistent progress in our Medical Devices business," said CEO Alex Gorsky in the press release.
Johnson & Johnson is among the first of the big healthcare stocks to report this earnings season, and the encouraging results helped boost the whole sector today.