Every quarter, investors look forward to the beginning of earnings season for signs of how overall economic conditions are translating into results for individual companies. Tuesday morning brought the first major earnings reports from the third quarter of 2019, and investors generally seemed to like what they saw. As of 11 a.m. EDT, the Dow Jones Industrial Average (DJINDICES:^DJI) was up 310 points to 27,097. The S&P 500 (SNPINDEX:^SPX) climbed 33 points to 2,999, and the Nasdaq Composite (NASDAQINDEX:^COMP) gained 99 points to 8,147.
Among the first companies to report their results each quarter are the nation's major banking institutions. Bank earnings brought a mixed bag on Tuesday morning, as JPMorgan Chase (NYSE:JPM) saw substantial gains after posting a favorable quarterly report. However, Goldman Sachs (NYSE:GS) wasn't as fortunate, showing the other side of the coin for the financial industry.
A win for JPMorgan
Shares of JPMorgan Chase rose 3%, as investors were pleased with what they saw in the bank's third-quarter financial report. Not only did JPMorgan manage to post record revenue, but it also sustained its core Fortress principles in demonstrating its financial strength even in the face of challenging conditions in the industry.
Revenue for JPMorgan came in at $30.06 billion, up 8% from year-ago levels. That helped push earnings higher by 15% year over year to $2.68 per share, which was better than most had forecast. As many had expected, net interest income growth was relatively slow at just 2%. However, the company made up for it by posting double-digit growth in noninterest revenue, with particular strength in fixed income investment banking and home and auto lending.
JPMorgan's kept itself healthy as well. Tangible book value climbed 9% from year-ago levels, and the bank's Tier 1 capital ratio of 12.3% was solid. The bank boasted $1.7 trillion in capital and credit on a year-to-date basis, taking advantage of trends favoring both debt and equity issuance among its corporate clients, as well as sovereign credit offerings.
Many had feared that an inverted yield curve and concerns about lower interest rates would weigh on JPMorgan's results. Yet the financial giant proved it can find ways to prosper even under difficult conditions, and shareholders reaped the rewards.
Goldman swings, misses
Shares of Goldman Sachs, on the other hand, were down 2% after the Wall Street giant reported disappointing third-quarter results. Goldman doesn't fall short of expectations very often, but it did this time around, raising questions among those following the banking industry.
Goldman saw weakness in several areas. Revenue was down 6% from year-ago levels, led lower by a particularly large slowdown in the investment banking segment. Net revenue for investment banking fell 15%, as declines in the financial advisory business weighed especially hard on Goldman. In addition, the investing and lending segment saw a 17% drop in sales, with a 40% plunge in equity securities revenue stemming in large part from bad performance in private equity investments. Even the investment management business was tepid, posting a 2% drop in net revenue from lower incentive fees.
Just about the only bright spot for Goldman was the institutional client services business, which featured a 6% year-over-year rise in revenue. Gains in both fixed income and equities helped keep the unit healthy.
Even Goldman Sachs can't expect to have perfect investment performance quarter after quarter, and so an occasional miss isn't a big warning sign. Nevertheless, for those who count on the bank for its consistency and reliability, today's report was a reminder that no stock is perfect.