While a lot of investors and analysts don’t believe Alcoa’s earnings make that big a difference to overall market direction, they are wrong as each quarter Alcoa has set the trend for the market direction with their earnings release. This is because Alcoa is one of those basic manufacturing, distribution conglomerates that gives a good view of the underlying strength or weakness found in the worlds’ economies. As the world’s largest manufacturer and distributor of aluminum products, Alcoa earnings gives a very good understanding of how the worlds’ economies are performing.
Market Direction and Alcoa Stock
Alcoa’s earnings met estimates of 6 cents a share but the income was above estimates with Alcoa earning 5.90 billion versus the estimated 5.6 billion. Alcoa Stock moved up in after hours trading to $9.29 at 4:17 PM. 2012 was the strongest years for Alcoa in 3 years which shows that Europe has contained much of the damage from the debt crisis, China is recovering and the US economy is still growing. Some of the figures from Alcoa CEO Klaus Kleinfeld were interesting.
1) Aluminum demand will double in this century
2) Aluminum demand is growing at 7% a year and he expects demand to grow 7% in 2013 although Alcoa no longer gives forward-looking guidance
3) Despite analysts opinions to the contrary, Alcoa had reduced their cost of production another 4%.
4) Housing starts was up 27% in 2012
5) He expects China to have an 8% GDP in 2013 and demand for aluminum to grow in China
6) Demand for aluminum from the automotive industry was at the highest in 2012 than in the past 4 years
7) Aluminium demand from the aerospace industry was strong in 2012
He also commented on two areas of concern:
1) The trucking industry is seeing difficulty and the average age of trucks in use is at the highest in the past 20 years as the biggest drop in demand is from the trucking industry.
2) The debt ceiling crisis in the United States is tough on confidence both at the business and consumer level and this could impact demand and earnings in the next quarter.
Market direction has been impacted each time Alcoa’s earnings have been released.
January 2012 Market Direction Rally
In January 2012 the release of Alcoa’s earnings kicked off a large rally as most companies that followed Alcoa’s earnings release showed strong earnings as well. The rally was among the strongest in 3 years as the market pushed up 10.8% in 3 months with only three pullbacks of any consequence and all 3 were short-lived.
Whether the market direction will push higher this winter as it did last is far more difficult to project as the economy is facing a few headwinds and stocks themselves are in my opinion more than fairly valued. The market direction going out to March 2013 is unpredictable in my opinion. I can only predict what the market direction technical timing indicators are showing for the next few days to a week.
Market Direction Looking Forward
There is though an underlying strength in the market direction at present. The weakness over the past couple of trading sessions is to be expected both from a technical aspect as the market is very overbought, to the fact that the S&P 500 has set a new 52 week high on January 4.
I’ll be looking at my market direction technical indicators later today, but the earning news from Alcoa is encouraging. Let’s see what the next few days brings for earnings from some of America’s greatest companies and it won’t take long to see is Alcoa once more sets the market direction trend.
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