Bellwether

bellwether

A security that tends to lead the market and signal the general direction of future price movements. An increasing price for a bellwether stock is considered a bullish signal for the overall stock market.

Case Study Securities maintain their bellwether status for varying periods of time. The common stock of General Motors Corporation was considered the stock market's bellwether for many years, until the American economy transitioned from manufacturing to computers and information management and GM's status was supplanted by the stock of International Business Machines. IBM stock's perch as a market bellwether was subsequently replaced by the common stocks of Microsoft and Cisco Systems, two major players in the new Internet economy. The 30-year Treasury bond served as the bond market's bellwether for nearly two decades, until the 10-year Treasury note took its place in the early 2000s. Unlike stocks that lost their status because of their company's products or services, the 30-year bonds were replaced as a benchmark because the U.S. government redeemed a large portion of its long-term debt, causing the 30-year bond to lose its important status in the bond market. The Treasury announced in late 2001 that sales of the 30-year Treasury bonds would be discontinued.

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Bellwether. A market bellwether is a security whose changing price is considered a signal that the market is changing direction.

It gets its name from the wether, or castrated ram, that walks at the head of a shepherd's flock. The distinctive tone of the bell around the wether's neck signals the flock's position.

There's not an official list of these trend setters, or market barometers, and they do change as the overall markets and the fortunes of individual companies change.