NEW YORK (CNN/Money) -
Forget about analysts' official estimates, this earnings season the focus is on whether companies can meet the unpublished expectations that Wall Street has collectively cooked up.
Yes, that whacky 1990s phenomenon, the whisper number, is back. Take a gander (as Paul La Monica did in this recent column) at how a slew of tech companies like Apple, Intel, Linear Tech and Yahoo! all beat consensus estimates, but sold off when their results came out, and you'll see it's true.
It's not hard to see how this came about.
It was clear, coming into this earnings period, that CEOs were low balling it, and that analysts were playing along. Despite surprisingly few companies warning that they'd miss on their numbers -- a dynamic that invariable suggests overall results will come in very well -- Wall Street estimates on the quarter did not move higher. So of course investors knew that earnings were going to be really good, and of course that expectation got built into prices
Still, the return of the whisper number is not a welcome development.
It is bad enough, really, that the U.S. stock market has become so doggedly focused on quarterly numbers -- who's up, who's down, what's the outlook. Many companies even offer midquarter updates, and these get followed as closely as their actual earnings releases. How do the heads of these companies find time to run things? And how much does the business outlook really change every 1 1/2 months?
When whisper numbers come into play, it's a sign that investors are even more intent on keeping up with where things are at on a nearly day-to-day basis. In the language of economics, they want to see the high-frequency data on their companies. As any economist will tell you, high-frequency data can sometimes be useful, but it is often suspect.
The use of whisper numbers also indicates that many market participants have shortened their time horizons significantly. The result is that stocks are becoming far more volatile -- a welcome development for traders who manage to get the moves right, but one that makes the market a more dangerous place for investors.