Believe it or not, first-quarter earnings season is here.
Alcoa (NYSE: AA), the aluminum-making giant and bellwether stock whose earnings signal the beginning of another season, reports after the bell today. Few other big-name companies report earnings this week – Thursday’s Pier 1 (NYSE: PIR) report could give us some early insight into the health of the housing market. Otherwise, Q1 earnings season won’t really get rolling until next week.
Three months ago, Alcoa’s earnings didn’t tell us much. The company’s fourth-quarter EPS of 21 cents was in line with analyst estimates. Typically, Alcoa’s earnings reveal quite a bit about where the market is going.
According to Factset’s John Butters, over the past 10 years Alcoa has beaten quarterly earnings estimates exactly half the time. When that happens, stocks rise by an average of 4.4% over the next three months (until the next earnings season). When Alcoa falls short of analyst estimates, stocks fall by an average of 0.9%.
Since Alcoa last reported earnings, the S&P 500 has risen 6.6%. The market rise came in spite of an Alcoa earnings report that was in line with analyst expectations.
Could an Alcoa earnings beat mean another strong quarter for the markets? With stocks already at all-time highs and plenty of non-earnings related headwinds coming from Europe and a slowing jobs market, it would be very surprising if stocks perform as well as they did last quarter. Earnings season is important – but there are other factors impacting the market at the moment.
On the flip side, don’t get too discouraged if Alcoa falls short tonight. As my colleague Ian Wyatt wrote last year, earnings season has been less of a determining factor in which way stocks are headed in recent quarters. Plus, over the last five years, stocks have actually increased nearly as much as they’ve decreased after an Alcoa miss.
Alcoa remains the groundhog of earnings season. But even Punxsutawney Phil is wrong from time to time.