What Alcoa Inc's (AA) Earnings Reaction Means for the S&P

This morning we covered the unfortunate aftermath of Alcoa Inc's (NYSE:AA) underwhelming start to earnings season. The shares have continued to slide, last seen 9% lower at $7.28, after hitting a six-year low of $7.10. But does the aluminum giant's earnings reaction have broader implications for the S&P 500 Index (SPX)?

Thanks to Schaeffer's Senior Quantitative Analyst Rocky White, we can look at data on AA's post-earnings results going back to 2005. In the 44 sessions after reporting earnings, AA shares were negative 26 times, positive 17 times, and flat once. And digging deeper, it appears there might be a connection between Alcoa's earnings reaction and the S&P's short-term trajectory.

Following a negative earnings reaction, the SPX's average one-month return is 0.2%. While this might sound appealing when juxtaposed against the market's recent performance, it pales in comparison to the broad-market success following a positive AA earnings reaction: When the stock gains after earnings, the SPX boasts an average one-month return of 1.7%, and is positive 71% of the time!

In the same vein, the broad-market barometer has been about 2.1% higher two months after a positive AA reaction, compared to an average gain of just 0.1% after a negative AA reaction. What's more, the SPX averages a three-month surge of 3.1% after an upbeat Alcoa report, compared to an average 0.5% gain after a lackluster earnings showing.

In conclusion, the S&P 500 Index (SPX) tends to fare soundly better when Alcoa Inc (NYSE:AA) outperforms in the earnings booth. Let's hope we break the trend this time around.