The world headquarters of Alcoa is seen along the north shore of the Allegheny River in Pittsburgh. Pa.Gene J. Puskar/The Associated Press
Welcome to another earnings season, with Alcoa Inc. still clinging to its traditional spot as the first major U.S. company out of the gate.
There was a time when any unexpected hiccup in the aluminum maker's quarterly profit set off a wave of market spasms, because this was one of the standard-bearers of the U.S. economy and a long-time component of the Dow Jones industrial average. But Alcoa lost its status as one of the chosen 30 U.S. heavyweights in the Dow index last year, and its main manufacturing customers occupy a shrinking piece of the American economic pie.
So although Alcoa is likely to garner lots of attention on Wednesday when it reports its third-quarter results during a tough period of falling demand for materials, it probably won't tell us much about broader earnings trends. And any impact on the market would be decidedly muted and short lived.
True, weaker Alcoa profit could signal troubles for U.S. construction, the automotive industry (which is actually on an aluminum buying spree) and even soft-drink marketers. But it's hard to see how that would impact the likes of Apple, Google, Johnson & Johnson or any major services company.
U.S. retail giant Costco Wholesale Corp., which also reports Wednesday, and South Korea's Samsung Electronics Co., which will unveil its latest earnings Monday, would appear to be better gauges of economic health, at least when it comes to consumer spending. But they can't be considered market bellwethers either.
"If Alcoa has positive earnings, I wouldn't be surprised if the market's up that day – if there's no other earth-shaking news," says Ed Yardeni, president and chief investment strategist at Yardeni Research in Glen Head, N.Y.
But forget about reading anything else into its numbers. "It hasn't been my experience that as goes Alcoa, so goes the rest of the earnings season," Mr. Yardeni says.
That hasn't prevented some market watchers from assigning remarkable market influence to Alcoa in the past.
One analyst observed in 2012 that Alcoa beat the mean street estimate in 19 quarters during the previous decade. The S&P 500 climbed in 15 of those periods.
"Recent history shows that when Alcoa has beat estimates, the price of the index has increased about 80 per cent of the time over the next three months," the analyst, John Butters of Factset, declared.
But if Alcoa has any such influence today – and it wasn't really credible even then – it will stem from reinforcing already building negative sentiment about the direction of an overvalued market.
"The market's had a great run, and while the small-cap [index] has corrected, the S&P 500 has not," says Mr. Yardeni, who believes the U.S. market has peaked. "It might be vulnerable to some weakness and earnings disappointments related to the strong [U.S.] dollar and a weaker euro-zone economy."
So this is a quarter that bears are watching closely. The question is whether there are any bellwether stocks that we should be focusing on.
Street favourites include FedEx Corp., which reported its fiscal first-quarter results last month, featuring strong revenue growth and healthier operating margins, and rival United Parcel Service Inc., which is due to report on Oct. 24.
"I would definitely look at them [as a gauge] for the health of the non-commodity segments of the economy," says Vitaliy Katsenelson, chief investment officer with Investment Management Associates in Denver. He expects third-quarter results to underscore the fact that the world is increasingly divided into two parts – the rebounding U.S. and the faltering economy almost everywhere else.
"No one ships iron ore through FedEx. Anything that is commodity-linked I'd be very worried about."
Financial powerhouse JPMorgan Chase & Co. is one Dow component that will draw plenty of attention when it explains its latest fiscal quarter numbers next Tuesday.
"It isn't so much the earnings, but where [in the business] they're generating them," says Arthur Heinmaa, managing partner of Toron AMI International Asset Management in Toronto.
"It gives you an idea of what they're seeing in terms of loan demand and creation, which is a signal of stronger economic growth."