Finance: What is a Barometer (in a financial sense)?

What is a Barometer? Barometers are things that help to judge economic performance. Things like the S&P and the Dow are considered barometers because investors and economists can determine market trends given the numbers they present.

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Transcript

00:28

aren't a guarantee of what the weather actually is or definitely will be the

00:33

readings are just a "highly likely" indicator

00:37

well financial barometers work the same way well you pick one slice of data to [One slice of pie on the floor]

00:42

then represent a much broader slice that the whole financial world cares about

00:46

like you could sample the performance on a given day of a dozen tech stocks if

00:50

all of them went up two percent well it's likely that NASDAQ had an awesome

00:55

up 2% day how can this kind of barometer be wrong well if the sample size or data [Tech stocks stamped poorly selected]

01:02

mix was poorly selected then yeah the barometer could be really wrong like if

01:06

you only picked as your sample for the barometer 12 small biotech company

01:12

stocks on a day when the government mandated no taxes for companies in

01:16

biotech under a hundred million dollars in revenue well on that day it's likely

01:21

that the very highly weighted in the index large pharma companies actually [Share price of big pharma stocks graph]

01:26

went down because now they as high tax payers have to compete with schools of

01:32

small fish who are you know tax advantaged against them so then the

01:37

index would go down even though those 12 bio stocks went up got it so that's a

01:41

stock market barometer and there are other barometers like investors doing

01:45

channel checks with large customers of search engine marketing companies to see

01:49

how well Google is doing that quarter like what's their volume if volumes are

01:53

really high Google stock probably go up

01:57

That's a channel check or barometer for

01:59

likely outcomes of Google stock price after the announcement of their earnings [Google stock price announced on newspaper]

02:03

got it another barometer checking on the health

02:05

of the economy well an investor might cruise through the job listing services

02:10

on places like glass door or indeed note how many listings exist for

02:15

plumbers, coders and shrimp de-veiners other barometers in the financial

02:20

octagon include things like gross domestic product or GDP per capita...

02:26

that's a barometer for how well or poorly the economy is swimming along and

02:30

things like new housing starts yeah that's a barometer that's a commonly [Man discussing housing starts barometer]

02:34

reported stat and it functions to give more lines on the barometer dial that

02:38

they are mashed up with yet more data on things like on the current inflation

02:42

rate and all kinds of other things including whether or not aliens land

02:46

from Mars the before February is that a barometer must be a really powerful one...[alien spacecraft lands in city and man walks away]