Blue Chip Indicator

Blue chip indicators are indexes comprised of the largest and best known public companies—in other words, blue chip stocks.

It is thought that whatever direction the wind is blowing for these companies, it can serve as a benchmark for the stock market, and the economy as a whole. Think of the Dow Jones Industrial Average, which is an index of 30 stocks with companies you may have heard of...such as IBM, Microsoft, Home Depot, Exxon Mobil, Wal-Mart, and Disney (GE got booted in 2018). They have a stable track record of earnings growth, usually offer dividends, and do not have a lot of big competitors.

Any guess as to why they are called blue chip stocks? A) You turn blue when you see the price to purchase them, B) It was once the highest value chip in poker, or C) You have to be a blue blood in order to buy them. If you carefully selected B, you are correct. Those approaching their retirement years like the security of blue chip stocks, while younger investors are looking for that “big bang” of high growth stocks.

Today, many investors look to the S&P 500 as a better bellwether for the stock market. It has a larger number of companies, obviously, and therefore a wider variety of industries to measure.