Earnings live: Bank of America, Morgan Stanley, LVMH, and ASML stocks jump on strong results

The Q3 earnings season commenced with several major companies reporting, highlighting strong performance in the financial sector as Morgan Stanley's profits surged 45% and Citigroup's net income rose to $3.8 billion, both driven by robust trading and dealmaking. LVMH reported an unexpected return to sales growth, and ASML topped order estimates on AI demand, while Johnson & Johnson beat earnings, raised its 2025 sales forecast, and announced an orthopedics unit spin-off. However, Abbott missed EPS estimates, causing a slight stock dip, even as analysts project overall S&P 500 earnings growth could reach double digits.

Analysis

The third quarter earnings season has begun with a generally positive outlook, as analysts project an 8% S&P 500 EPS jump, potentially reaching 13% due to historical upside surprises, marking the ninth consecutive quarter of positive growth despite decelerating from Q2's 12%. Financial institutions, particularly Morgan Stanley and Citigroup, reported robust results driven by strong dealmaking and trading activities. Morgan Stanley's profits surged 45%, with dealmaking fees up 44% to $2.1 billion and client trading fees soaring 24%, leading to a nearly 4% premarket stock climb. Citigroup also saw a 9% total revenue growth and a 17% jump in dealmaking fees, with net income rising to $3.8 billion. Wells Fargo also beat expectations, with its stock rising over 2% premarket.

Beyond financials, LVMH unexpectedly returned to sales growth, and Domino's reported accelerated US same-store sales of 5.2%, both beating expectations and seeing significant stock gains. Johnson & Johnson beat EPS estimates, raised its 2025 sales forecast, and announced plans to spin off its orthopedics unit, signaling strategic focus. Ericsson's shares surged 14% after beating profit forecasts and downplaying tariff impacts.

However, not all reports were uniformly positive. Abbott Laboratories' diluted EPS of $0.94 missed the $1.04 estimate, causing a 1% premarket stock decline, primarily due to a 6.5% drop in US Nutrition sales and a 6.6% decline in Diagnostics. ASML, while beating orders estimates due to AI demand, issued a warning about a significant drop in Chinese demand next year, introducing future uncertainty.

The strong performance in the financial sector, coupled with unexpected growth in luxury and consumer discretionary, suggests resilience in certain segments of the economy. However, the mixed results from healthcare and the geopolitical risk highlighted by ASML's China outlook indicate that sector-specific challenges and macro factors remain critical for investor consideration.

Key Decisions for Investors

• Investors should consider overweighting financial institutions with strong capital markets exposure, given the robust dealmaking and trading activity reported by Morgan Stanley and Citigroup.
• Evaluate companies with unexpected sales growth, such as LVMH and Domino's, as indicators of resilient consumer demand in specific luxury and discretionary segments.
• Monitor the implications of strategic corporate actions like Johnson & Johnson's planned orthopedics spin-off for potential value creation or unlocking in diversified conglomerates.
• Exercise caution with companies exhibiting segment-specific weaknesses, like Abbott's EPS miss driven by declining US Nutrition and Diagnostics sales, despite overall market optimism.