by Bruce Fenton

It’s no secret today’s stock market is propelled “up and to the right” by earnings expectations. These expectations, widely broadcast by the financial press, generally come from two sources—the “official consensus estimate” and so-called “whisper numbers.”

In the case of the former, the terms official and consensus are somewhat mutually exclusive because, in reality, there is no “official” source for estimates.

Thomson ONE is a Thomson Financial (TF) service that operates a global research network that money managers and brokers worldwide rely on for real-time, commingled equity and fixed income research, corporate news, quantitative and shareholdings data, and the internal distribution of research. The company gathers data from its network of analysts and compiles this information into so-called consensus estimates. This information is then provided to service subscribers.

Whisper numbers can play an even more important role than the consensus estimates in moving stock prices during the quarterly earnings season. Whisper numbers do not always originate from securities analysts. In fact, on the Internet there are several websites where individual investors can input their own “whisper numbers.”

It is not uncommon for the financial officers of public corporations to poll a handful of analysts just before the end of a quarter to get their expectation and then suggest to the analyst that they consider some additional information. These key analysts may adjust their estimates so that they are more aligned with the company’s own expectations with the hopes that other analysts revise their expectations.

This has the effect of helping to reduce the volatility in the stock price, both up and down, when earnings are announced. For example, a few weeks before the end of the quarter, a computer manufacturer might call a handful of key analysts to get an idea of what their estimates are. If the estimates are off by a significant amount, the company will point out items such as rising or falling chip costs, increasing or decreasing sales costs, large contracts in the pipeline, etc. The resulting “whisper numbers” may be more accurately aligned with the “consensus estimates” coming from sources such as Thomson ONE.

Whisper numbers are playing an increasingly important role in keeping today’s stock market momentum-bound by acting as a measuring point against which actual estimates are measured. Thanks in no small part to the Internet’s whisper websites, information and speculation on a specific company can be instantly shared around the globe.

The Internet offers a plethora of information, some factual and some a bit more gossip-oriented, on individual companies, industries, and the markets. However, I caution you to take most of what you see with a grain of salt.

Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.