What is a market basket in the stock market?


Quick Answer

A market basket is a list of consumer goods and services that is used to track financial information about the stock market, according to Investopedia. Market baskets also sample a range of stocks, bonds and other securities and are meant to reflect the behavior of an entire market.

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Full Answer

Market baskets are used to track information such as inflation, prices, performance levels and overall cost of living, explains Investopedia. They are used to figure out how much more or less it would cost to purchase any given mix of goods and services at a given time. Investors often use market baskets in the form of index funds. Index funds are portfolios created to serve as a point of comparison for investment returns by tracking and simulating information about a specific market.

The Consumer Price Index, or CPI, is a popular example of a market basket. The U.S. Bureau of Labor Statistics, or BLS, calculates the CPI by looking at price levels of consumer goods and services, and provides an estimate for inflation. Market baskets such as the CPI are developed by gathering detailed expenditure information from communities and measuring the average change over time in the prices paid. The CPI samples information from more than 200 item categories, including food and beverage, apparel, housing, medical care and education, explains the BLS.

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