DEFINITION of 'Bellwether Stock'

A bellwether stock is a stock believed to be a leading indicator of the direction of the economy or of a sector of the market or the market as a whole. Bellwether stocks are typically large-cap equities. When they report strong earnings that may indicate the economy is strong. Their market performance may also signal how a sector or the market as a whole is likely to perform.

BREAKING DOWN 'Bellwether Stock'

Many different stocks may be classified as bellwethers. Alcoa Aluminum, for example, is considered a bellwether for the economy because it operates in a cyclical industry, and if it reports strong earnings that suggest the economy is strong. In addition, it is the first major company to report quarterly earnings, and its report is considered a bellwether for corporate earnings season.

Quarterly financial results for General Electric, a large conglomerate, have long been considered a bellwether. FedEx is also considered a bellwether for the economy. Strong revenues and earnings for FedEx suggest strong consumer and business shipping activity, which ebbs and flows with the strength of the economy. Shipping and rail stocks have historically been particularly good bellwethers for the U.S. economy.

Caterpillar has often been viewed as a bellwether not only for the domestic economy but also the global economy. Global sales of its construction equipment can signal global economic health.

Alphabet, the parent company of Google, is considered a bellwether of tech sector performance by some analysts.

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