DEFINITION of 'Bellwether'

An event or indicator that shows the possible presence of a trend. The performance of certain companies/stocks and bonds are considered by analysts to indicate the condition of the economy and financial markets because their performance is well-correlated with a trend. Bellwether companies are usually the market leaders in their respective sectors.

BREAKING DOWN 'Bellwether'

A bellwether stock is a stock that is used to gauge the performance of the market in general. For many years General Motors was an example of a bellwether stock, hence the saying, "What's good for GM is good for America." Similarly, a rapid decrease in available steel may indicate economic recovery, since steel is used in manufacturing and building.

The word is a combination of "bell" and "wether". Shepherds would often hang bells around the necks of the sheep that led the flock in order to determine where they were in the fields.