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What Happened in the Stock Market Today

By Jim Crumly – Oct 16, 2018 at 4:56PM

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Stocks bounced back, with investors encouraged by earnings reports from companies like Morgan Stanley and Johnson & Johnson.

Stocks rebounded Tuesday from last week's sell-off as investors were cheered by positive earnings reports. The Dow Jones Industrial Average (^DJI 0.08%) and the S&P 500 (^GSPC 0.25%) both gained more than 2%.

Today's stock market

Index Percentage Change Point Change
Dow 2.17% 547.87
S&P 500 2.15% 59.13

Data source: Yahoo! Finance.

Investors snapped up technology shares that had taken a beating recently, with the First Trust Dow Jones Internet ETF (FDN 1.82%) surging 3.4%. Healthcare stocks also had big gains; the Vanguard Health Care ETF (VHT -0.61%) closed up 3.1%. 

As for individual stocks, Morgan Stanley (MS 0.37%) blew away third-quarter expectations and Johnson & Johnson (JNJ -0.39%) also reported strong results.

Upward graph and pile of coins.

Image source: Getty Images.

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.

Jim Crumly owns shares of Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson and has the following options: short October 2018 $135 calls on Johnson & Johnson. The Motley Fool has a disclosure policy.

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