Almost lost amid the great and glorious hoopla surrounding the inauguration of the 44th president of the United States is that fourth-quarter earnings have been lousy -- and much, much worse than expected just a few months ago.

To be fair, Wall Street analysts aren't soothsayers; they have no more view into the future than a strip-mall psychic. Armed with spreadsheets and assumptions, analysts merely attempt to model forward earnings. That said, their calculations have proven to be far too bullish for far too long.

As recently as September analysts' anticipated the S&P 500 to generate year-over-year fourth-quarter earnings growth of more than 50%, according to Thomson Reuters. Talk about wishful thinking. That view has stumbled and tumbled steadily downward to where we are now: A fourth-quarter earnings drop of more than 20%. Look at the forecast trend, consider that earnings season is barely underway, and investors have ample reason to sweat their sheets. (See chart.)

Source: Thomson Reuters

This near total uncertainty on the part of the pros poses a near impossible challenge for value hunters. That's because every time the bad news is ostensibly baked into share prices, the earnings part of the forward price/earnings equation takes another dive, making the market look less like a bargain and more like a value trap.

The main culprit remains the usual suspect: financials, where the nightmare continues to worsen. In a handful of trading days we learned that Bank of America (BAC) bought more of a lemon than a Lexus in Merrill Lynch; Citigroup (C) is disintegrating; and the U.K.'s RBS (RBS) is set to record a whopping $40 billion loss.

"What drove the S&P 500 down 4.5% last week?," asked Ed Yardeni, president of Yardeni Research. "More big losses for financials and renewed questions about whether they would continue to survive in their current form."

Equities in all 10 sectors and 106 of 131 industries declined last week, Yardeni told clients in a Monday research note. Even worse, just three weeks into 2009 all 10 sectors and 100 of 131 industries have posted declines.

Is it any wonder the recent 25% bear-market rally off November lows was so short-lived? Stocks are supposed to represent a claim on future profits, but if we've learned anything from early fourth-quarter returns (as well as analysts' chopping expectations), it's that plenty of seemingly cheap sectors and stocks can't be valued with any conviction. The global economy and financial system is in unchartered territory; it's nigh impossible to discount for the uncertainty.

Drilling down to the sector level almost makes things look worse. Financials are forecast to post a 98% drop in adjusted fourth-quarter earnings, according to Thomson Reuters. Materials? They're seen falling more than 70%. Consumer discretionary should tumble 60%. Strip financials out of the S&P 500 and the remaining nine sectors are still expected to post a fourth-quarter earnings drop of more than 17%. (See chart.)

The takeaway? Every time estimates seem to support some kind of valuation floor the real numbers tell a different story, setting yesterday's equity "bargains" up for further declines. As we saw this time last year, don't be surprised to see good news go unrewarded and bad news be disproportionately punished.

Source: Thomson Reuters

"Our expectation is that some individual companies will have much better earnings than expected, though their stock prices may not jump for joy," says Joe Clark, managing partner of Financial Enhancement Group, a financial planner in Anderson, Ind.

Take the freefall in forward estimates and investors' persistent aversion to anything that smacks of risk, and it's almost impossible to separate the bargain plays from the basket cases. As fourth-quarter earnings season unfolds, buy-and-hold investors needn't feel any pressure to put idle cash back to work in equities. If anything, they'd best be prepared to take some profits if and when another sucker's rally obliges.