Investors already have a cautious stance in the market amid growing fears about the world's biggest economies, and Monday's Alcoa (NYSE: AA) earnings report didn't help.
The aluminum producer, which always kicks off the earnings season, delivered more of a punt than a kickoff. The Dow bellwether reported an 81.3% drop in profits, as the global slowdown and production cuts weighed on profits.
Reporting after Monday's market close, Alcoa said income from continuing operations came in at $61 million, or 6 cents a share, on revenue just a hair under $6 billion. While significantly lower than the same period a year ago, the lackluster results still managed to beat Wall Street's tepid expectations (analysts were looking for 5 cents on revenue of $5.8 billion).
Chairman and CEO Klaus Kleinfeld said in a statement following the earnings release, "Alcoa maintained revenue strength amid solid liquidity by driving high profitability in our mid and downstream businesses and by reducing costs and improving performance in our upstream businesses."
Contributing to the profit decline was a global glut resulting from stagnant and slowing growth in many areas around the world, especially China.
Alcoa Earnings Surprise is Positive News for Global Economic Recovery
When Alcoa Inc. (NYSE: AA) kicked off earnings season on Monday by soundly beating analysts' expectations, it flashed positive signals for the company and, more importantly, the entire global economic recovery.
The aluminum giant swung from a loss of $0.26 in the same quarter last year to a gain of $0.13 per share, exceeding by 18% the 11-cent average estimate of 17 analysts surveyed by Bloomberg News.
"It's a very positive signal for economic growth and the stock market generally," John Stephenson, who helps manage $1.6 billion including Alcoa shares at First Asset Investment Management in Toronto, told Bloomberg. "Maybe end-use demand has not been destroyed. That's a very good sign and a great way to start off this Q2 earnings season."
Capital Wave Investing: Is it Time to Profit From the Cash-Rich Technology Sector?
A little more than one year after the economy hit bottom during the Great Recession, American companies are sitting on nearly $1 trillion in cash, a capital wave serving as a call to action for a long-moribund mergers-and-acquisition market.And history shows that a burst of M&A activity can be just what the doctor ordered for a stock-market rally that's looking for a booster shot: After a near-record-breaking rally in the first year of the current bull market, a flurry of dealmaking could be the catalyst that fuels Year Two of the rally - perhaps even pushing stock prices back to, or even past, their previous highs.
As a rule, an increase in M&A activity is a bullish sign for both the economy and the stock market, says Money Morning Contributing Editor Shah Gilani, who tracks deals for his own advisory service, The Capital Wave Forecast. As far as capital waves go, this surge in cash-driven deals is one of the most powerful around, and will have substantial spillover effects.