One of the company's survey questions, titled "earnings surprise direction," asks analysts whether a company's coming profits "are more likely to surprise on the upside or downside".
"We expect the earnings surprise direction to be able to capture the information not released to the market," stated a confidential BlackRock memo from November 2008, detailing its analyst surveys of nine brokerage firms in Asia.
Aggregate earnings management.
At these gatherings, attended by client and proprietary traders, research analysts would identify stocks they thought were likely to rise or fall because of coming earnings announcements, the direction of the overall market or other short-term developments.
With the outlook on the economy still foggy, Wall Street turned to earnings reports for direction.
Asked to respond on a scale of 1 to 5, an analyst giving a 1 to a question about the expected direction of earnings at a particular company signals a significant downward revision.
That is the likelihood that a stock's return on the day after its quarterly earnings report matches the direction of the Standard & Poor's 500-stock index over the next five weeks.
"Whenever people begin to get too far in one direction — meaning earnings are going to be terrible — generally reality is better than that, and we are seeing that now," said Tim Ghriskey, chief investment officer of the Solaris Group in Bedford Hills, N.Y.
England's Luke Donald will donate $5,000 to the relief fund for each of his birdies at Augusta, while Ryo Ishikawa has committed to handing his entire season's earnings in the same direction.
Two retailers, moving in opposite directions, reported earnings today.
