Analysts were shocked at the better than expected results from Alcoa yesterday.  Of course, regular readers weren’t the least bit surprised as I have been forecasting another quarter of better than expected earnings for quite a while.  The Expectation Ratio continues to display incredible (almost uncanny) prescience.  It kept me out of the market in late 2007 & 2008 and was the deciding factor in my return to a (more) bullish position early this year.  I’ll keep you updated on the ratios status regularly as we head into the latter portion of the year.  Expectations are certain to turn frothy at some point and the ratio will display this before the earnings reports hit the wires. For now, it is sounding the all clear as analysts chase the carrot and play catch-up.

As for Alcoa, the analysts are now sounding quite upbeat about the quarter.  As the ER predicted, earnings turned positive 3 quarters ago and analysts are now changing their tune (after the fact).  Of course, the ER isn’t a predictor of specific stocks, but the AA quarter is a microcosm of what we can expect from the entire S&P 500.  As for what analysts now think about the AA quarter – the WSJ reports:

Morgan Stanley: Concerns on demand remain. Management lowered its guidance for 2009 global demand to a 6% decline from 7% previously, mainly due to China. However, as incremental data from China has slowed, concerns remain that Chinese demand is slowing before rest of the world is ready to pick up. Chinese available capacity has grown, posing risk of further over-supply. Further, there is the risk of unwinding of financing contracts that have kept physical availability limited.

J.P. Morgan: This marks the third consecutive quarter of better-than-expected EPS for AA after a dismal record of misses over the prior five quarters. We believe the sentiment around AA’s stock could be turning more positive and that this DJIA component could likely serve as a magnet for new money looking to play a global economic recovery.

Credit Suisse: Looking ahead, in our view seasonal weakness and production shutdowns will limit the likelihood of another sequential improvement in Q4 results in our view, assuming aluminum prices remain range bound, before a more sustainable demand recovery materializes in 2010.

Calyon Securities: Compared to the 2Q09 conference call, end markets outside of China have not improved, with the exception of U.S. auto (”cash for clunkers”) and global aerospace. However, the global industrial gas-turbine business has deteriorated since the last update. In China, AA sees improving automotive and heavy truck & trailer industries.

UBS: Alcoa updated its 2009 expectations for global aluminum demand year-overyear from -7% to -6%. The company noted that Russia consumption is expected to be down -15% (from -8%) offset by a 4% increase in China (from flat). Management also noted that it expects overall growth of 11% between the first and second halves of 2009, driven by emerging market growth.

Read more from the WSJ here.