by Michael Tarsala
Alcoa’s (AA) earnings and subsequent stock selloff is being seen by some to be a negative sign for the many earnings reports yet to come.
And possibly for the markets.
Ryan Detrick is a strategist at Schaeffer’s Investment Research. He told CNBC that over the past 26 quarters, the S&P 500 rose the next month about 70% of the time when Alcoa moved higher on its earnings report.
The S&P was was down more than 50% of the time when Alcoa shares moved lower on earnings.
Indeed, Alcoa did little to dispel the fact that it could be a difficult earnings season for other companies – especially ones in the manufacturing and materials sectors.
It makes some sense that Alcoa is a bellwether. Aluminum is an economically sensitive industry, and it’s tied to big-ticket capital expenditures including airlines orders and automobile purchases.
Perhaps the single-biggest worry overall though, is that analysts did not drop estimates fast enough for the majority of companies in all cyclical sectors heading into the reporting season.
Analysts now forecast Q2 earnings growth of 5.8%, according to Thomson Reuters data, down from an expectation of 9.2% growth at the start of the second quarter: It’s been the worst earnings warning seasons since late 2008.
We will soon see if they have set the bar low enough; studies have shown that analysts tend to have a positive bias and are slow to cut earnings targets.
Photo by: Christine Johnstone
