Barometer Stock

Posted in Finance, Accounting and Economics Terms, Total Reads: 1157

Definition: Barometer Stock

Barometer stock means a security whose performance is said to be an indicator of performance of a particular industry or a sector, or the market in whole. It acts like a gauge for the overall sector or market. In the short term, to predict the future direction of an industry, analysts generally look to barometer stocks. Barometer stock is a British term. It is also referred as a bellwether stock in US.

They are generally the large-cap equities or respected blue chip stocks which signal a bullish market in favorable periods and during a period of an unfavorable performance, they signal a bearish market. Many different sorts of securities can be sorted as barometers; but In US, the rail stocks & shipping have historically been the good indicators for their economy and so they are considered to be the good bellwethers. Barometer stocks can largely influence the economy of a country. Market analysts generally say one thing "What is good for barometer stock is good for the country."

Example: Dow Jones Industrial Average – it is the best known index of stocks in US. A price-weighted average of thirty actively traded blue-chip stocks, mainly industrials stocks including stocks which trade on the NYSE. So, the Dow, as it is named, is a barometer of the performance of the shares of the largest companies in the US.

The January Barometer stock theory is a theory which states that the variation in the S&P 500 during January month sets the stock market’s future direction for the year, as evaluated by S&P 500. The January Barometer tells us that if S&P 500 is up at Jan end compared with its initial position at the start of the month, participants may expect the stock market to increase during the remaining year.

Hence, this concludes the definition of Barometer Stock along with its overview.


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