Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 209

a shortfall may see a decline in their stock values. But this is not always the case. A few days before a company releases its numbers the market buzzes with a new set of numbers known as the whisper numbers. Whisper numbers are unofficial rumors as to what the actual company's earnings would be. You may notice a marked increase of activity (volume) in the stock and options of the company in the days leading to the earnings release. Tensions are high, and with the whisper numbers on the street, the expectations may become unreasonable. Many companies have experienced steep drops in their stock prices, even when beating the estimates, just because their earnings did not measure up to the whisper numbers.

Others may experience a drop in their stocks because of a known psychological factor known as selling into the earnings news. This is when a stock has had an impressive run up right up to the earnings release. Then, with the earnings out, investors (not expecting another earnings release until the next quarter) lock in their profits by selling the stock. Many companies try to soften this blow by making pre-announcements concerning their earnings. For example, they may announce that they will meet the estimates (meaning that they may not meet the whisper numbers); or if they are not expecting a good quarter, companies may pre-announce that too. These pre-announcements usually can bring the investors back to reality. The company's stock may still experience a drop, but it may not be as sharp as if they had not made any announcements. If there are bad numbers to be had, many analysts will go to work and revise their estimates so that by release time, the company's numbers compare more favorably with the newly revised estimates.

All of this goes to show that companies walk a tightrope during earnings release times. The pressure is on to meet the estimates, and with the investors having itchy trigger fingers, companies may

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Copyright and Disclaimer
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Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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