Wild Whisper Numbers

Story Highlights:

• With earnings season upon us, investor expectations are as wild and disparate as actual earnings are likely to be.
• No one knows what to expect—for instance, Citigroup and Bank of America's woes seem in direct contradiction to JP Morgan's announced quarterly profit.
• Some economic predictions are missing by full percentage points. If just one portion of the economy is that hard to predict, how much more so the whole thing?
• With uncertainty so high, inevitable surprises could send markets to retest November lows. But history shows they'll ultimately rise in the face of it all.

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In days past, were tidbits of out-of-consensus earnings forecasts circulated among professional investors to preferred clients before a firm's results were reported. That kind of behavior is now frowned upon, but the phrase has been retooled to mean something else—investors' collective earnings expectations.

With earnings season upon us, the whispers are as wild and disparate as actual earnings are likely to be. We know the fourth quarter was bad, but we don't know how bad. Nobody does. We're in a strange period—fast and abrupt, a true panic. Consider Thursday's market swings. The S&P 500 went from down almost 3% at one point to finish the day up a little. Reminiscent of those volatile days last October and November.

There are times when study of earnings and economic indicators is pretty precise—did they beat or miss the forecast by a penny or a tenth of percent? Minutiae are hotly debated and scrutinized. But none of that matters right now. Widely divergent forecasts show even experienced veterans are confused about the near future. And that's not too shocking—is traditionally unpredictable and difficult to time.

The recent renewal of Financials concerns is a great example. Bank of America forced their request for more federal aid to complete the acquisition of Merrill Lynch. Citigroup , and many expect the firm to report a multi-billion dollar fourth quarter loss. Financials are clearly still in peril, so all the big players must be taking a hit, right? Not so fast. Thursday morning, JP Morgan —much smaller than a year earlier, but certainly not a billion dollar loss.

Some economic expectations have been just as divergent. Take yesterday's release of December monthly retail sales data. Retail sales significantly more than economist expectations of a 1.5% drop. We're often not talking a few tenths of a percent deviation from expectations; we're talking full percentage points. If just one portion of the economy is that hard to predict, how much more so the whole thing?

Be ready for anything in the next year or so. Fact is, no one knows what changes are in store, even just a few months out. With uncertainty so high, the inevitable surprises could send markets to retest November lows. But they'll ultimately rise in the face of it all. In the meantime, expect the unexpected and try not to heed wild whisper numbers.