The big news—the news that’s fueling today’s across the board rally in stocks—isn’t the extra two cents that Alcoa (AA) reported in second quarter earnings last night. The company reported earnings of 13 cents a share, two cents a share above Wall Street forecasts. Much of that, however, seems to have come from more aggressive than expected cost-cutting at the company.
No, the big news was the company’s increase in guidance for the next quarter and the rest of 2010. The company said that it was raising its forecast for global aluminum demand to 12% growth this year from its previous forecast of 10% growth.
 That raised hopes on global stock markets that economic growth this year might actually be higher than expected. In this earnings season it’s guidance that counts, I’d argue.
The increased demand comes from lots of markets and in lots of industries.
Alcoa’s forecast for higher demand growth depends heavily on China and the United States. The company raised its forecast for demand growth to 12% in 2010–or 6.5% if you exclude China. Although China is the fastest growing growth market, the United States still accounts for more than half of Alcoa’s revenue. I think it’s reasonable to infer that an increase in the company’s demand forecast reflects continued decent growth from the United States. Especially since Alcoa is forecasting essentially no growth from Europe.
Revenue growth in the quarter was led by commercial transportation and packaging. Alcoa forecast that aluminum sales to the auto industry would grow by 3% to 8% this year with sales for trucks and truck trailers set to climb by 12% to 17%. (That feeds into my forecast of better than expected growth for Cummins. See my July 8 post Update Cummins (CMI) .) The company did forecast a continued decline in demand from commercial construction—but the forecast drop was just 1.5% to 2.5%.
I am not very enthusiastic about this rally until dow industrails is above 10500 at least. The trend is still down. I wonder if there is real buying or if it is short covering ? Some say this market is schyzzophrenic, changing its mood when you least expect it. I scan the SP 500 Mid 400 and Dow 65 Indices everyday and I still see more stocks in a strong dwontrend the in a strong uptrend. Moreover the timing signals I have found are a bit wishy-washy. Take care !
Jim always says he’s not a “market timer,” but his prediction of a bounce? relief rally? — whatever his wording was — was the green light I needed. Thanks, Jim!
Tom
Your statement is illogical—it follows the thinking that Wall Street wants investors to believe. One could say the opposite to your remark and be just as accurate; look back 10 years for the S&P, what was the performance?
Tom,
I was more then 40% in cash while the market gained 7%, but I also got out before the last big drop, so over all I’m still higher then I would have been if I left all my money in the market.
Tom & STL, I’m still 45% cash and 5% short, not the best combination right now.
Jim,
any comments on GMXR or COMV? Not really related to alcoa, or even directly to each other, but I feel both are well positioned to gain in the second half of the year.
Jim,
a bit off topic, but a stock like CPL, Brazilian utility, has a moderate sell from analyst rating and increasing monthly, yet it is rated a 10 with significantly outperform the market over the next 6 months! This seems to be a mixed signal, any help here from anyone would be appreciated. Thx. all.
Jim, Is this a sign to get in the market ? Good Guidance ? How about the financial overhaul,Bank earing & forcast ?
Im 0% cash and I’m all in
How many of you were 40% or more cash while the market just rallied 7%? It’s not about timing the market. It’s about time IN the market.