Alcoa losing its accuracy as a bellwether for the U.S. stock market

Alcoa Inc., the first Dow Jones Industrial Average member to report results each quarter, is losing its accuracy as a bellwether for the U.S. stock market.

The Standard & Poor’s 500 Index has usually followed Alcoa’s lead since 2002, rising 2.5 percent in quarters when the aluminum producer beat the market after earnings, less when it didn’t. That relationship has broken down since 2011, when the S&P 500 posted even bigger gains, about 3 percent, when Alcoa’s results hurt its stock, according to data compiled by Bloomberg.

Overtaken in size and market clout by diversified commodities companies such as BHP Billiton Ltd and Glencore International Plc, Alcoa has struggled to make a profit with aluminum prices sagging as production outpaces the metal’s use. Investors are looking beyond the New York-based producer, which announces results after the close of trading today, to companies such as International Business Machines Corp., which reports in ten days, according to Bespoke Investment Group.

“We don’t consider it much of a bellwether,” said Edward Dewees, who helps oversee about 3 million Alcoa shares among the $2.7 billion managed by New York-based Douglas C. Lane & Associates. “As far as did Alcoa beat or meet earnings, that’s a meaningless headline. Any investor who’s going to make a decision about other companies’ earnings based on Alcoa’s headline earnings that are silly.”

Alcoa is expected to report a 8-cent a share profit today, according to the average of 18 analysts’ estimates compiled by Bloomberg, two cents less than the results the company delivered in the first quarters of 2010 and 2012.

Monica Orbe, a spokeswoman for Alcoa, declined to comment on the company’s earnings or its position in the market.

In the seven quarters during the past two years in which Alcoa has underperformed following its earnings results, the S&P 500 has still climbed an average of 3 percent in the following 90 days, including one rally of as much as 8 percent, the data show. The S&P 500 fell 0.5 percent the one time the company outperformed.

“With this upcoming earnings season we wouldn’t put nearly the same confidence that we would just five or six years ago,” said Detrick. The company’s results now predict the direction of the market about as well as a “coin flip.”

“A $9 billion company is clearly not as significant as one of the top 30 blue-chip names,” Detrick said.

The number of large institutional shareholders owning Alcoa has dropped by 47 percent in the past 10 years, according to data compiled by Bloomberg. In the first quarter of 2003, 390 investment managers controlling $100 million or more said they held Alcoa shares. In March, only 208 such firms reported owning Alcoa shares.

Alcoa’s debt may be downgraded to junk level, Moody’s Investors Services said Dec. 18.