For whom the bellwether tolls

For decades, investors have looked to a handful of so-called bellwether stocks for early signals about the health of the economy, with the performance of companies such as Next and M&S read as shorthand for consumer confidence.   

So, when Next upgraded its profit guidance in a trading update earlier this week, following strong Christmas sales and share price growth, the assumption might be that the economic outlook is not quite as gloomy as recent Organisation for Economic Co-operation and Development (OECD) and Office for National Statistics (ONS) data suggests. After all, Next’s figures suggest resilience. Full-price sales rose 11% in the nine weeks to late December, and international sales surged almost 40% in the fourth quarter, helped by sharper marketing. Even in the UK, where growth slowed, sales still rose 6% — better than management had feared.   

If this is a preview of the retail earnings season, conditions may not be as grim as many had anticipated. Perhaps. But perhaps we need to question whether Next is still a bellwether, or whether the concept itself is a relic of a simpler market era. 

The detail tells a more complicated story. December’s strength owed much to clearance rates being higher than expected, with more stock flowing into end-of-season sales than planned. That is less a signal of confident consumers than of cautious ones, hunting discounts in the face of a rising cost of living. Food price inflation picked up again last month for the first time since August according to the British Retail Consortium (BRC), and overall shop price inflation is edging higher. Unsurprisingly, the clear winners of the festive period were the discounters, with Aldi and Lidl both reporting record Christmas sales. 

This matters because bellwethers are meant to offer clarity, not mixed messages. Next’s ability to keep upgrading guidance reflects excellent execution and a diversified business model, particularly internationally. But that very diversification weakens its usefulness as a proxy for the average British retailer — let alone the average British household. A strong Next no longer necessarily means a strong high street, just as a weak Next would not automatically spell disaster. 

More broadly, the idea that a single company can meaningfully “ring the bell” for an entire sector feels increasingly outdated. Consumer behaviour is fragmenting, income pressures are unevenly distributed, and retailers now operate across wildly different price points and geographies. In such an environment, bellwethers may tell us more about themselves than about the economy they are supposed to represent. 

Next’s latest update is neither a warning siren nor an all-clear. It is a reminder that investors should be wary of reading too much into any one stock, however venerable its reputation. The bell may still ring — but it no longer tells the whole story.