Bellwether stocks are those that are believed to be indicators of the direction of the economy or a particular sector of the market. It is essentially seen as a leader and that the rest of the industry or sector follows whichever way it goes. These are typically large cap stocks which means that they have a market capitalization of more than $10 billion. Market capitalization is calculated by multiply the number of shares outstanding by the stock price per share; this information can be found on the company's public filing report. Some stocks that are considered to be bellwether stocks are JP Morgan Chase
For example, if JP Morgan Chase stock is doing well then this can be a signal that the financial sector as a whole is doing well. Conversely, if JP Morgan Chase stock is doing poorly then this could potentially be a sign of trouble ahead for the sector. Bellwether is an economic indicator in this sense because data from these companies can be used by analysts to current and future investment opportunities. Another example is FedEx. It is one of the largest mail delivery and freight services companies. FedEx is a bellwether stock because if the economy is doing well, people are buying and selling more goods and subsequently, FedEx has more shipments to fulfill. When FedEx stock price is compared to the U.S. GDP growth rate, the chart indicates similar troughs and peaks.
Analysts also look at LVMH
Although the performance of such companies does not directly correlate to the state of the economy and whether it will grow or contract, but they serve as good indicators of overall health when evaluated in tandem with other indicators.