Strong Alcoa (AA) Earnings Spur Market Bounce-back

Alcoa (NYSE: AA) kicked off earnings season with a bang late yesterday, spurring a stock-market rally early today to help erase five straight days of losses.

Alcoa’s first-quarter earnings of 10 cents a share were down nearly 70% from the 28 cents per share the company earned a year ago, but exceeded what most analysts were expecting. The earnings beat has sent the stock surging 8.4% this morning to $10.10 per share. Alcoa shares are now up 17% in 2012.

That’s good news for the market as a whole. Alcoa has long been deemed a bellwether stock because it manufactures aluminum, the second-most used metal in the U.S. behind steel.

When Alcoa’s sales are good that means its customers in the transportation, construction, packaging, sporting good and household appliance industries, among others, are spending freely on aluminum – a telltale sign of general economic health.

So Alcoa’s better-than-expected earnings have convinced investors to start buying stocks again today. The S&P 500 rose more than 1% in early trading, while the Dow Jones Industrial Average shot up 112 points, or 0.9%. The Nasdaq outdid both those indexes, climbing 1.2%.

This is a complete turnaround from how U.S. stocks have performed over the past week. The S&P has fallen for five straight days, shedding 3% since April 2. The Dow has fallen even further, dropping 3.5% over the same period to dip to its lowest level in more than two months.

Whether the markets can sustain this morning’s rally will depend largely on how the next few rounds of earnings go. Financials are up next: JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC) are slated to report earnings on Friday.

That will be a window into how the big banks performed in the first quarter – and another important measuring stick for how quickly the U.S. economy is growing.

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