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This weekend's WSJ featured an article that highlighted how Alcoa's earnings report will give investors a glimpse as to "how corporate America is weathering the tighter credit, weakening dollar and a continued strong demand for commodities across the globe" ("Alcoa May Offer Blueprint On Coping in Markets Storm" - WSJ 10/6/07). With its report coming after today's close, we looked at past earnings reports from Alcoa to see if they provide any clue as to how the market performs during earnings season.

The chart below compares the results of Alcoa's last 24 earnings reports versus expectations with the S&P 500's performance during earnings season (Alcoa's report through Wal-Mart's report). Quadrants highlighted in gray indicate that Alcoa's EPS results did not accurately predict the direction of the market during earnings season, while no shading indicates that either stronger than expected results coincided with a stronger market, or weaker than expected results led to a weak market.

While Alcoa's results have been accurate in predicting the market's direction during its last three reports (green circles), over the entire period, the results are much less convincing. Over the last twenty four earnings reports, Alcoa's results versus expectations have only accurately predicted the market's direction during earnings season 54% of the time.

click to enlarge

Source: Alcoa's Earnings: Barometer for the Market?