Excitement about a possible return to a bull market has been building for months. Yet indexes like the popular Dow Jones Industrial Average (^DJI 0.40%) haven't been able to keep upward momentum lately, and some investors simply aren't convinced that the worst for the market is behind them.
When any of the 30 companies that are in the Dow Jones Industrials report their latest financial results, it has the potential to move the entire market. On Tuesday morning, both Johnson & Johnson (JNJ -0.46%) and Goldman Sachs (GS 1.79%) gave investors their quarterly reports for the third quarter. Those reports got full scrutiny from Wall Street analysts, and here are some takeaways from the results.
Johnson & Johnson begins a new chapter of its story
Johnson & Johnson's Q3 report looked a lot different to longtime shareholders than past quarterly filings. That's because the healthcare conglomerate has taken a key step to simplify its business structure and concentrate on what it sees as its best opportunities for long-term growth.
Earlier this year, Johnson & Johnson spun off its consumer health segment into a separate company. It then did an initial public offering (IPO) of the unit, calling the new business Kenvue (KVUE -0.84%). For a time, Johnson & Johnson still owned nearly all of Kenvue's shares, but it subsequently conducted an exchange offer that invited J&J shareholders to accept Kenvue shares in exchange for their J&J holdings. As a result of those actions, Johnson & Johnson now owns only a small stake in Kenvue.
Because of the divestiture of most of its Kenvue holdings, Johnson & Johnson's financial results included only its pharmaceutical and medical device business. Pharmaceuticals have largely led the way forward for J&J for years now, although success on the medical device front has also contributed to the healthcare giant's overall prospects.
Overall, Johnson & Johnson was able to post modest gains in revenue and profits in Q3. Some of its cancer treatments have been among the top performers in the pharmaceutical segment, while an impressive pipeline of candidate drugs and medical devices is giving investors confidence in J&J's future. Despite some short-term declines immediately after the report, the long-term argument favoring Johnson & Johnson remains intact.
Goldman Sachs fails to see a big rebound
Goldman Sachs shares have had a tough time of late. The Wall Street investment banking colossus has seen its stock price sink since the beginning of 2023. Even with ongoing concerns about the state of the banking industry, Goldman investors hoped that renewed activity in the IPO market could help foster a return to more normal levels for its core business. Yet that didn't pan out the way most had hoped.
Coming into the report, expectations for Goldman weren't all that high. Most investors were prepared to see the bank have weaker revenue than it did in the year-earlier period, and earnings per share were expected to drop by roughly a third. That's largely in line with what happened, with Goldman reporting a 1% drop in sales and a 33% decline in net income.
Yet the key question for Goldman's longer-term future is still whether the lull in deal-making is finally coming to an end. The bear market in 2022 led many privately held companies to delay doing initial public offerings in search of better valuations at some point in the future. 2023 has seen more IPOs and some major mergers and acquisitions, but high interest rates are still putting limits on the amount of volume Goldman's clients can do.
Once Goldman's investment banking business starts to recover, it would mark a key point in the business cycle on Wall Street. The resulting positive sentiment could make market participants more upbeat about investing in general and foster a new wave of risk-taking that could push stock markets still higher -- and perhaps eventually challenge those all-time records. Until that shows up more clearly, though, Wall Street could keep having bad weeks like the one it had this week.
