6 Bellwether Stocks to Watch

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Tech behemoths such as Nvidia and Apple have drawn investor attention lately because of their stock gains and heavy weightings in market indexes and investment funds.

But there’s another group of stocks that deserve special attention. They are bellwethers, or weathervanes for investors. These companies aren’t necessarily big, profitable or even good investments. Instead, they serve as barometers for their sector or industry, or for the economy as a whole.

Historically, analysts paid special attention to conglomerates such as the old General Electric because its formerly diversified business reflected activity throughout the economy. Alcoa, which produces aluminum used by manufacturers, not only served as an industrial signal but also garnered attention by being one of the first companies to report its earnings each quarter. But in 2024, as consumer spending and technological innovations have come to dominate the U.S. economy, “there’s a whole new set of bellwether companies,” says Thomas Martin, a senior portfolio manager at Globalt Investments.

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The factors that make a stock a good barometer remain the same, however. For one, timing is still key. Companies that are among the first to report their earnings after the close of a fiscal quarter often get extra attention because their performance can reveal trends affecting competitors that haven’t yet announced results.

A company’s role in the economy is also important. The revenues and profits reported by transportation companies and suppliers of key manufacturing components, for example, hint at the outlook for not only their own industries but also the industries they serve. Companies with a broad reach still act as windows on the general economic landscape — albeit different companies in a changing landscape.

Significant moves in the stock prices of bellwethers can be signals for investors. But most analysts, including Que Nguyen, chief investment officer of Research Affiliates, say they generally focus on the sales and earnings announcements companies make every quarter. Especially revealing, she says, are the managers’ comments about sales growth and indicators of demand.

The internet has made it easy for you to get access to this kind of information. Any investor can freely access a company’s quarterly earnings announcements and analyst calls. The Securities and Exchange Commission’s EDGAR site posts all public companies’ quarterly and annual reports, as well as many other kinds of announcements. Companies post their earnings reports and investor presentations on the investor relations section of their websites.

And many free financial news and investing websites, such as Yahoo Finance, post corporate announcements and transcripts of the calls company officials have with analysts. Kiplinger.com provides a calendar of upcoming earnings announcements.

We asked investment professionals about which stocks they consider modern-day bellwethers. Six are listed below.

Fastenal

As the nation’s largest distributor of fasteners — literally the nuts, bolts and rivets of the industrial economy — and a company that posts monthly updates on orders, Fastenal (FAST) offers “a good read on short-cycle manufacturing demand,” says Jason Adams, portfolio manager of the T. Rowe Price Global Industrials Fund.

Adams’s fund doesn’t hold any Fastenal stock, in part because Fastenal’s first-quarter earnings report revealed a decline in sales of fasteners (though it did see growth in other products, such as safety equipment). That sign of softening demand for many basic supplies indicates “it’s still a tough slog out there in the U.S. industrial economy,” Adams says. “Investors should remain a little patient and selective.”

J.B. Hunt Transport Services

This large trucking firm (JBHT) specializes in moving shipping containers around the country. It tends to report its earnings about two and a half weeks after each quarter ends, which is comparatively early. So the ups and downs of its orders, revenues and profits are important indicators of overall economic activity, says José Torres, a senior economist at Interactive Brokers.

In the first quarter of 2024, the company reported that demand for its services transporting containers from ships to warehouses was down from the same period last year. Torres says that warns of economic weakness for competing transportation companies such as railroads — at least until the Federal Reserve finally starts to lower interest rates, boosting the economy.

He also believes that Hunt’s recent results might indicate weakness in manufacturing sectors focused on products considered to be discretionary for cash-strapped consumers (household furnishings and the like).

JPMorgan Chase

The nation’s biggest bank is also among the first firms to report earnings after each quarter ends. Such early information from a company with a broad reach throughout the economy makes JPMorgan Chase (JPM) an excellent bellwether, says Globalt’s Martin.

In JPMorgan Chase’s most recent report showing growth in business loans, for example, Martin sees indicators that creditworthy businesses are confident about their ability to repay more and bigger loans. That makes him hopeful for an economic “soft landing,” or a cooldown in economic growth that doesn’t lead to a recession.

Lam Research

As a major manufacturer of machinery for making computer chips, Lam Research’s (LRCX) sales are a key predictor of the tech industry’s strength, says Research Affiliates’ Nguyen. “Semiconductors are everywhere. Even toasters now have chips in them,” she notes.

Lam reported comparatively flat sales in the first quarter of 2024. But in their comments to investors and analysts, executives said they are seeing a slow but steady growth in orders.

“What that tells me is that business investment in technology continues,” Nguyen says. “Growth continues to be reasonably robust, which bodes well for the entire semiconductor sector,” as well as companies that use technology, such as Amazon.com and Alphabet, she says.

Mastercard

Credit card lending is a good gauge of consumer spending, which accounts for about two-thirds of the economy, says Matt Stucky, chief equities portfolio manager for Northwestern Mutual Wealth Management. Strong spending signals health; consumer pain shows up as delinquencies or late payments.

Stucky says Mastercard’s (MA) reports of rising spending in 2023 persuaded him that worries about a recession last year were misplaced, which encouraged him to stay invested in stocks (and thus benefit from last fall’s run-up). In 2024, a combination of rising revenues, profits and delinquencies for credit card firms indicates that although companies serving lower-income consumers may face more stress, overall consumer spending remains healthy, he says.

Microsoft

Microsoft (MSFT) has so many large businesses — selling office software, providing cloud-computing services and leading the artificial intelligence revolution — that it’s “the new GE,” says Nguyen.

The company has its “fingers in a little bit of everything and so can serve as an indicator for the broad economy.” Jim Golan, a comanager of the William Blair Large Cap Growth mutual fund, keeps a sharp eye on Microsoft’s announcements, not only because the stock is his fund’s largest holding but also because it gives him insights about many other companies.

For example, he says, Microsoft’s continuing investments in more and bigger data centers (buildings that house big banks of computers) make him bullish about a variety of related companies. “Spending on data centers has a ripple effect on everything from the power grid to concrete,” he says.

That’s one reason Golan’s fund is invested in Martin Marietta, one of the biggest providers of building materials such as cement — in essence, turning ephemeral data into something more concrete.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Kim Clark is a veteran financial journalist who has worked at Fortune, U.S News & World Report and Money magazines. She was part of a team that won a Gerald Loeb award for coverage of elder finances, and she won the Education Writers Association's top magazine investigative prize for exposing insurance agents who used false claims about college financial aid to sell policies. As a Kiplinger Fellow at Ohio State University, she studied delivery of digital news and information. Most recently, she worked as a deputy director of the Education Writers Association, leading the training of higher education journalists around the country. She is also a prize-winning gardener, and in her spare time, picks up litter.