Earnings Estimate

There's an old saying on Wall Street: "Buy on the rumor; sell on the news." The point of this old chestnut is that the stock market largely moves on anticipation. People make their (sometimes very gaudy) livings by getting into stocks ahead of everyone else. There's a lot of money to be made being early...as long as you're right.

All this is to say that there's a high premium placed on guessing what's going to happen on Wall Street. The underlying driver of action in the stock market is corporate earnings. Shares represent ownership in companies and rise in value as the companies involved make money.

So that gives us the two basic engines of stock trading: guessing stuff...and corporate results. Which leads to the following equation: guessing stuff + corporate results = earnings estimates.

Wall Street banks and brokerages employ a small army of really smart people (known generally as analysts) whose entire jobs involve guessing what companies will report when they announce their results. (Well, sometimes there are conflicts of interest with the companies being covered, so it's not always entirely true that an analyst's sole job involves accurately predicting results. But it's a big part of it anyway, even if they don't always publicly issue their full, unabashed opinions.)

When a company announces its results (See: Earnings Announcement), the stock will largely move based on how the company's reported metrics compare with the estimates going into the release. If the company beats expectations, there's a good chance the stock will rise. If it misses expectations, the stock will likely fall.