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Alcoa no better than coin flip as bellwether status fades

By Sonja Elmquist, Bloomberg

April 8, 2013 • Reprints

Alcoa Inc., the first Dow Jones Industrial Average member to report results each quarter, is losing its accuracy as a bellwether for the U.S. stock market.

The Standard & Poor’s 500 Index has usually followed Alcoa’s lead since 2002, rising 2.5% in quarters when the aluminum producer beat the market after earnings, less when it didn’t. That relationship has broken down since 2011, when the S&P 500 posted even bigger gains, about 3%, when Alcoa’s results hurt its stock, according to data compiled by Bloomberg.

Overtaken in size and market clout by diversified commodities companies such as BHP Billiton Ltd. and Glencore International Plc, Alcoa has struggled to make a profit with aluminum prices sagging as production outpaces the metal’s use. Investors are looking beyond the New York-based producer, which announces results after the close of trading today, to companies such as International Business Machines Corp., which reports in 10 days, according to Bespoke Investment Group.

“We don’t consider it much of a bellwether,” said Edward Dewees, who helps oversee about 3 million Alcoa shares among the $2.7 billion managed by New York-based Douglas C. Lane & Associates. “As far as did Alcoa beat or meet earnings, that’s a meaningless headline. Any investor who’s going to make a decision about other companies’ earnings based on Alcoa’s headline earnings, that’s silly.”

Expected Profit

Alcoa is expected to report a 8-cent per share profit today, according to the average of 18 analysts’ estimates compiled by Bloomberg, two cents less than the results the company delivered in the first quarters of 2010 and 2012.

Monica Orbe, a spokeswoman for Alcoa, declined to comment on the company’s earnings or its position in the market.

Since 2002, the S&P 500 gained an average of 2.5% in the 90 days following Alcoa’s earnings in instances where Alcoa outperformed the market on the day after its results, according to data compiled by Bloomberg. When Alcoa underperformed, the benchmark gauge for U.S. equities only added 0.5% in the next 90 days, the data show.

In the seven quarters during the past two years in which Alcoa has underperformed following its earnings results, the S&P 500 has still climbed an average of 3% in the following 90 days, including one rally of as much as 8%, the data show. The S&P 500 fell 0.5% the one time the company outperformed.

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Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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mining 3077metal 3075financials 2975stocks 2123Standard & Poor 2008equities 1689New York 841New Jersey 590Barclays Plc 573earnings 303BHP Billiton Ltd. 157Alcoa Inc. 151Chevron Corp. 108Rio Tinto Group 101aluminum producer 80International Business Machines Corp. 78New York University 77Bloomberg Industries 66Glencore International Plc 29Alcoa 25Stern School of Business 18Bespoke Investment Group 15Klaus Kleinfeld 14Alain Belda 10aluminum products 8John D. Rockefeller 6engineered products 4aluminum processing 4Andrew Carnegie 4Douglas C. Lane & Associates 3Andrew Cosgrove 3Harrison 2Dow Jones Industrial Average 2Monica Orbe 2Paul Hickey 2Ryan Detrick 2Reynolds Metals Co. 1Inespal SA 1Cordant Technologies Inc. 1Shaeffer 1U.S. Steel Corporation 1jet-engine and electricity-generating turbines 1state-owned aluminum producer 1unprocessed metal 1Edward Dewees 1George David Smith 1Martin C. Hall 1Paul Heroult 1

Free Newsletter Modern Trader Follow

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