Further Evidence That Alcoa Has Low Correlation To Earnings Season Trends (AA, SPY, XME)

Alcoa, Inc. (NYSE: AA) is one of the first stocks that kicks off earnings season every quarter.  Today is its actual earnings report after the closing bell.  What is interesting is that traders try to use this stock as a bogey for measuring earnings trends for the market as a whole and as well for the metals and mining sectors.  We have always held that because the company has had so many problems that everything might be coincidental rather than correlated. We wanted to compare this to the S&P 500 measured by the corresponding performance of the SPDRs (NYSE: SPY). The SPDR S&P Metals & Mining (NYSE: XME) ETF is what we use to track broader metals as a whole and it has Alcoa as a 3%+ component. While the recent earnings seasons and markets have been extremely volatile, we ran trends going back for 8 of the last earnings seasons comparing Alcoa to the SPYDERS and to the XME ETF.

What we did was compare the Alcoa trend to both sector and market ETF’s and gave a one-day percentage change of each, a 5-trading-day percentage change, and a month-end percentage for each.  The data was taken from the earnings reporting date listed by Alcoa itself and does not take into consideration any mid-quarter or interim updates on guidance.

April 7, 2009
Versus 1-day change AA +3.4%; SPY +1.1%; XME +2.1%
Versus 5-day change AA +16.1% ; SPY +4.4%; XME +10.9%
versus month-end change AA +16.2%; SPY +7%; XME +18.6%

January 12, 2009
Versus 1-day change AA -5%; SPY +0.1%; XME +3.1%
Versus 5-day change AA -17%; SPY -7.3%; XME -8.5%
versus month-end change AA -22.6%; SPY -4.7%; XME -2%

October 7, 2008
Versus 1-day change AA -11.9%; SPY -2.5%; XME +1.2%
Versus 5-day change AA -22.3%; SPY -0.1%; XME +1.8%
versus month-end change AA -31.5%; SPY -3.7%; XME -6.7%

July 8, 2008
Versus 1-day change AA -2.4%; SPY -1.9%; XME +0.6%
Versus 5-day change AA +6.7%; SPY -4.9%; XME +3.5%
versus month-end change AA +4.4%; SPY -0.3%; XME -0.6%

April 7, 2008
Versus 1-day change  AA -0.6%; SPY -0.1%; XME +2.6%
Versus 5-day change  AA -9.3%; SPY -2.9%; XME -0.9%
versus month-end change  AA -6.6%; SPY +0.9%; XME -0.9%

January 9, 2008
Versus 1-day change  AA +0.6%; SPY +0.6%; XME +2.6%
Versus 5-day change  AA -1.9%; SPY -2.4%; XME -1.9%
versus month-end change  AA +5.8%; SPY -2.1%; XME +4.8%

October 9, 2007
Versus 1-day change  AA -2.5%; SPY -0.1%; XME +0.5%
Versus 5-day change  AA  -6.1%; SPY -1.7%; XME -2.2%
versus month-end change  AA  +0.1%; SPY -1.1%; XME +3.6%

July 9, 2007
Versus 1-day change  AA -1.6%; SPY -1.4%; XME -1.5%
Versus 5-day change  AA +10.4%; SPY +1.1%; XME +1.3%
versus month-end change  AA -9.8%; SPY -4.8%; XME -10.1%

The only direct correlation we have been able to deduce as far as how indicative Alcoa is for the market as a whole measured by the S&P 500’s SPYDER ETF is that 7 of 8 of the last quarters you have seen the market close in the same direction as Alcoa on the day after earnings.  We have found very little S&P 500 correlation to Alcoa through a 5-day or end of month basis.

In 7 of the last 8 quarters if Alcoa closed up or down the day after earnings then the XME closed at least in the same direction (positive or negative) at the end of that month.  That may also be coincidental, though, because on the day after Alcoa earnings we have yet to find any solid data showing the correlation in the day after reaction between Alcoa and the XME.

There are of course some other trends noticed here, but the outcome on our end so far is that there should still be a very low correlation on how Alcoa acts after earnings versus any direct trend to expect during earnings season.  The issue is that when you take the rate of change into consideration here, we feel that there is more coincidence rather than direct correlation over the time period used to measure.

JON C. OGG
JULY 8, 2009