While Alcoa is not the big name it used to be, and it is arguable that the earnings season does not really start until banks begin reporting next week, it still represents the kickoff to earnings season, at least among old-timers.
And since we have a huge new data sandbox to play in, I asked our partners at Kensho what happens in the quarter when Alcoa reports earnings above or below expectations. Here’s what the data revealed:
Since 2005, Alcoa beat 16 times, and missed 23 times.
When Alcoa did beat, the S&P 500 was up 75 percent of the time for quarter and averaged a return of 4.4 percent.
When Alcoa missed, the S&P 500 was up 65 percent of the time, but the average return was -0.24 percent.
In other words, an Alcoa beat does seem to correlate with a somewhat stronger S&P 500.
I’ve been noting that earnings for the S&P 500 have been negative for the first and second quarters, and are heading negative for the third quarter, for a couple weeks. Late Tuesday, Bank of America became one of the first firms to lower its full-year forecast for the S&P 500 into negative territory for the entire year, which if correct would mark the first year of negative earnings growth since 2009.
The main drivers of the “earnings recession” are well known:
- 50-percent drop in crude prices
- Dollar up 20 percent since June
Despite the bad news, the drivers of the “earnings recession” could be temporary, and indeed Bank of America believes they will be. It expects the dollar’s strength and oil’s weakness to end sometime this year. The bank said, “we do not expect the impact on growth to get much worse from these levels and should start to fade by the second half of the year.”
Disclosure: NBCUniversal, parent of CNBC, is aminority investor in Kensho.