The market has shown investors since its inception that stocks don’t trade purely on fundamentals; they seem to trade more on expectations. Expectations are influenced by the companies and interoperated by Wall Street. Expectations on Wall Street are missed, met or exceeded.
Expectations that are missed typically have a negative impact. Expectations that are met typically have a neutral effect. Lastly expectations that are exceeded, most of the time, command a positive effect. The interesting effect of expectations is that they seem to supersede the underlying real data or action.
Imagine two children attend the same school and take exactly the same classes. One of the children is an A student and the other is a B student. On report card day both come home with straight A’s. The A student met expectations and the B student exceeded them. I will bet you the parents’ response will be more favorable for the B student who exceeded expectations, even though they got the same exact grades.
The Expectations Indicator is hopefully a way to show trending expectations for a sampling of the market and individual sectors. This indicator is not meant to give advice on market sentiment, but more of an understanding of its expectations. The expectations indicator views measureable changes in earnings expectations.
When expectations are low, typically it is easier to exceed them. If expectations are high, it is usually easier to miss them. When expectations are neutral, expectations are just as easy to miss or exceed.
The first Expectations Indicator results should be released Monday from information gathered on Friday May 1rst, 2009. Since Expectations Indicator concept is new, only time will prove this it useful or useless. This indicator will be released weekly until proven not useful. We will also be using popular Indexes to measure its success from the previous week. The indicator when released is for information purposes only and is not meant to constitute any type of financial advice.
