Goldman Beats, JPMorgan Misses: 8 Key Items Shaping the Stock Market Tuesday

These are the early headlines and other items poised to influence the market at the start of trading Tuesday. As we share this collection of market drivers, U.S. equity futures point to a mixed market open.

1. Iran is fortifying its defenses, rallying loyalists and threatening a wider, harsher response against the U.S. and its Gulf allies as it prepares for potential American attacks after the midterms and seeks to deter them. Iranian officials have warned publicly and in private conversations with regional officials that the Islamic Republic will respond with further escalation across the Middle East if the U.S. launches new strikes. (WSJ)

Despite the above, we are seeing oil prices trend lower this morning after Brent crude hit an almost one-month high yesterday. An increasing number of reports are raising questions about Russian-supplied diesel alleviating tightness in global fuel markets given the state of its refining sector and the year-over-year fall in diesel inventories. Yesterday, the EIA reported another large weekly drop in U.S. oil inventories, this time driven by U.S. crude oil, which saw a massive drop of nearly 18 million barrels for commercial and strategic inventories.

2. JPMorgan Chase reported a rise in third-quarter profits, but its results missed expectations following a drop in revenue from fixed income trading. The US bank reported net income of $15.3bn on Tuesday, below analyst forecasts of $16.3bn… JPMorgan Chase’s unexpected drop in third-quarter fixed income revenues is a further sign that Wall Street’s trading boom is losing some of its momentum. Analysts had been expecting a 7 per cent gain, whereas the bank delivered a 4 per cent decline. That weakness seems to have hit the shares, even as revenues from equities trading handily beat estimates. There the gain was 49 per cent, 15 percentage points more than analysts were expecting. Investment banking fees were the area where the bank hit forecasts on the nose, with a 14 per cent increase in line with market expectations. (FT)

Wells Fargo posted an increase in third-quarter profit on Tuesday, helped by growth in its loan book and higher interest income… Wells has leaned on credit cards and auto loans to grow its consumer loan book, tapping into healthy spending trends. (Reuters) Provision for credit losses totaled $1 billion and net charge-offs, loans the bank deems uncollectible, were $983 million, San Francisco-based Wells Fargo said Tuesday in a statement. Both figures were better than the average estimates of analysts in a Bloomberg survey. (Bloomberg)

Goldman Sachs on Tuesday posted a higher third-quarter profit as dealmaking remained steady and volatile markets tied to the Middle East conflict boosted the Wall Street giant’s equities revenue… The equities business posted a 72% jump in quarterly revenue to $6.44 billion. The fixed income, currency and commodities business revenue, however, came in at $3.47 billion, down 1% from a year ago. (Reuters)

These earnings results are a clear reminder that not all banks have the same revenue mix and that market share matters. We’ll look to draw out more insight than those covered in the earnings press releases during this morning’s round of earnings calls. Our focus will be on prospects for trading activity and investment banking, with a particular interest on the IPO market, and what that could spell for Anthropic’s upcoming IPO. That event is expected to generate tremendous fees for the underwriters that include Morgan Stanley (MS), Goldman Sachs (GS), JPMorgan Chase (JPM) and Citigroup (C).

3. Domino’s Pizza reported third-quarter earnings that beat Wall Street expectations. Comparable sales growth improved from the previous quarter, but remained weak as the pizza chain works to revive demand amid intense competition for budget-conscious diners. The pizza chain has been navigating a difficult environment as inflation-weary consumers become increasingly selective about restaurant spending. Rival chains have responded with discounts and value meals, intensifying competition not just among pizza companies but across the broader quick-service restaurant industry. (Barron’s)

With U.S. comp sales up 0.3% year over year in Q3 2024, but with revenue rising 2.1% for U.S. stores and profits up as well, that sure tastes like the benefit of higher prices to us. That helps explain, in our view, why comp sales remain sluggish. Pizza used to be an affordable family meal.

By comparison, Albertson’s (ACI) reported identical sales of +0.8% for its September quarter this morning. While contrasting it against Domino’s 0.3% figure, it tells us consumers are leaning more toward eating at home. The real comparison, however, is against Costco’s (COST) monthly sales and when we do that, there is little question consumers are turning to it for more of their shopping needs. As we move through the current earnings season, we’ll continue to compare and contrast quarterly comp sales figures from retailers and restaurant companies.

4. Applied Materials Inc. expects to double revenue over the next few years, without a commensurate rise in hiring, because it’s relying more on artificial intelligence tools for things like product development and quality control. “As we double the size of the company over the next few years, we’re not going to be doubling headcount,” Gary Dickerson, chief executive officer of the chip-equipment maker, said in an interview. (Bloomberg)

Despite that multi-year forecast from Applied Materials (AMAT) as Semicon West gets underway today, chip stocks are under renewed pressure. Some of that can be traced back to comments yesterday from Broadcom (AVGO) CEO Hock Tan but also a comment from Tesla (TSLA) and SpaceX (SPCX) CEO Elon Musk about China’s ability to ramp manufacturing capacity.

Those comments are not impacting demand for chips or chip capacity but rather investor sentiment. We’ve seen this before and it tends to have a short-term impact, which can be frustrating and at times painful. The glass half full view for those like us that focus on the medium to longer-term like Applied is doing above is that a short-term shift in sentiment is likely to bring about opportunities to build up position sizes at more favorable stock prices. With that in mind, as we follow the data and the demand, the items we’ll be focusing on this week include Anthropic’s pre-IPO analyst day, and quarterly results from Taiwan Semi (TSM) and ASML (ASML).

5. Mark Zuckerberg says Meta has caught up with rivals at the “frontier” of AI, committing to further vast spending to challenge Anthropic and OpenAI and downplaying warnings about the risks of the technology running out of control… Zuckerberg signalled further spending as Meta was “already working on the next step up”, adding that its model development would “probably feel like it’ll go quite a bit faster from here”… Meta must also overcome concerns about user privacy, with a small number of users accusing Muse of accessing or sharing private information without permission… He pointed to the company’s promised “Muse Confidential VM”, an upcoming version of Muse where a user’s data and conversations with their agent would be completely inaccessible to the company. (FT)

Coming off yesterday’s new AI model announcements and favorable Muse metrics, we’re not surprised to see Meta’s (META) Zuckerberg out and about discussing how the company is catching up with OpenAI and Anthropic. However, despite Zuck’s comment above about Muse Confidential VM, we continue to see Meta as a show me story when it comes to user privacy and that means our focus will remain on its ability to convert Muse and other AI model downloads to subscription revenue. As we explained, given the size of its multi-platform user base, Meta does not need to convert a high percentage of that base of AI subscribers to get Wall Street to re-think how it values META shares.

6. Johnson & Johnson beat third-quarter earnings expectations and hiked its full-year outlook on Tuesday, though stumbles in its medical technology business left investors lukewarm… The reaction could have something to do with J&J’s mixed performance across its two core business units. Prescription drugs fueled strength in the latest quarter as sales rose 7.7% in J&J’s pharmaceutical arm, compared to just a 2.5% increase in its medical technology division… Overall sales in J&J’s MedTech division missed Wall Street estimates after all four segments—cardiovascular, orthopedics, surgery, and vision—underperformed. Global surgery sales slipped 0.6%, while growth across the remaining three areas ranged from 3% to 4.5%. (Barron’s)

During this morning’s earnings call, we’ll look to see what Johnson & Johnson (JNJ) identifies as the root cause for the across-the-board sales drop at its MedTech business. Is it losing market share? Is demand waning as consumers put off procedures? Are medical practices tightening their belts and not procuring new equipment? More to come as we get the details.

7. Economic data today per TipRanks: NFIB Small Business Optimism Index (September), ADP Employment Change (Weekly), Existing Home Sales (September).

8. Companies reporting today per TipRanks: AM – Albertsons (ACI), Citigroup (C), Domino’s Pizza (DPZ), Goldman Sachs (GS), Johnson & Johnson (JNJ), JPMorgan Chase (JPM), UnitedHealth Group (UNH), Wells Fargo (WFC).

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At the time of publication, TheStreet Pro Portfolio was long AMAT, AVGO, COST, META, and MS.