What are headwinds and tailwinds in business and stocks? While reading or listening news one often comes across words. These are financial jargon and seem complicated. Headwind is finance jargon for the external difficulties a business face or will face while “tailwinds,” are factors that push a company forward. In this article, we shall simplify headwinds and tailwinds. What are headwinds and tailwinds in stocks? Where does the term originate from?
What are HeadWinds and TailWinds in Airplanes?
Headwinds and Tailwinds are nautical term related airplanes.
Imagine an airplane trying to fly. It has to move forward and up. But It is flying through the air and are winds all around it.
(Remember the Class 8th Physics where we learned about Bernoulli’s principle?)
Headwinds are the winds pushing the plane from the front, either moving it back or slowing it down
Tailwinds are the winds coming from behind the plane, pushing the plane forward.
So the wind is at the back, tailwind helps move forward more quickly.
If the plane is moving into a headwind, that will only make progress more difficult.
What are HeadWinds and TailWinds in Stocks?
Let’s compare stock to an airplane. The stock prices try to move higher.
Just like planes, a stock has to face many forces such as economic, political, regulations, exchange rates, or corporate development, etc.
Such forces can be either act as a tailwind or a headwind.
Tailwind describes the condition or situation that will help a company grow. For example, rising petrol prices will be beneficial for the oil companies.
Headwind is a condition that will make growth more difficult. In business terms, headwinds refer to conditions that may cause a decline in profits, revenue, or growth. For example, if the price of potatoes goes much higher, McDonald faces headwinds.
A headwind for one sector can be a tailwind for another and vice versa. So rising petrol prices were good for oil marketing companies but bad for paints companies which use oil in the paint.
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