Benchmark indices like the Dow Jones Industrial Average contain stocks from different industries that gauge overall market sentiment. Benchmark Stocks are companies that are leading indicators for both their respective industries and the economy in general.
For example, Wal-Mart Stores, Inc. (NYSE/WMT), the world’s biggest retailer, is often referred to as a benchmark stock for retail sales. If profits and revenue at Wal-Mart are strong, consumer retail sales can be construed as healthy. At the same time, weak or strong Wal-Mart revenues point to how much discretionary income the average American has and their spending patterns. When consumers are buying goods from cheaper retailers, diverting sales from more expensive retailers, it means that they are hoping to save money.