The Predictive Power Of Alcoa's Earnings Announcements

Q1 earnings season unofficially kicks off after the closing bell when aluminum giant Alcoa releases its quarterly financial results.

Some say that Alcoa sets the tone for earnings season.

Factset's John Butters ran 10 years of numbers to see if this was indeed true. Here's what he found:

Over the past ten years, Alcoa has reported earnings above the mean EPS estimate 50% of the time (20 out of 40 quarters). In the 20 quarters that Alcoa reported actual EPS above the mean EPS estimate, the average price change for the S&P 500 from report date to report date (for Alcoa) is 4.4%. The price of the S&P 500 increased in 16 of these 20 quarters (80%). In the 20 quarters that Alcoa reported actual EPS below the mean EPS estimate, the average price change from report date to report date is -0.9%. However, the price of the index decreased in only 11 of these 20 quarters (55%). During the other nine quarters, the price of the index increased over the next three months after Alcoa missed estimates.

"Thus, recent history shows that when Alcoa has beat estimates, the price of the index has increased about 80% of the time over the next three months," writes Butters. "When Alcoa has missed estimates, the price of the index has actually increased nearly as often as it has decreased over the next three months."

As a global supplier of aluminum, it is an economic bellwether. So there is arguably merit to these findings.