Dow Jones Industrial Average: What Is the DJIA?
Also referred to as the Dow 30, the index is considered to be a gauge of the broader U.S. economy. The Dow’s approach is unlike other leading indexes used to track the overall performance of the stock market, like the S&P 500 or the Nasdaq Composite. These consider a the research driven investor company’s market capitalization when determining how much influence it will have in an index.
The Dow 30 was developed as a means of tracking the overall performance of the U.S. stock market in an age when information flow was relatively limited. The idea was to let ordinary investors know which direction the market was heading. When the media reports that the stock market is up or down for the day, they mean the US 30. Its movements are used as a proxy for the overall performance of the stock market. In many people’s eyes, the US 30 is a barometer of the U.S. stock market and economy. The Dow Jones Industrial Average groups together the prices of 30 of the most traded stocks on the New York Stock Exchange (NYSE) and the Nasdaq.
Charles Dow also believed it was possible to predict stock market movements based on the price movements of different types of stocks. According to Dow Theory, an upward trend in industrial stocks should be confirmed by a similar move up in transportation stocks. Charles Dow created various market averages to more accurately define which way ” industrial stocks” or ” transportation stocks” were headed. The US 30 or Dow 30 is a widely-watched stock market index comprised of 30 large U.S. publicly traded companies. As of June 2021,[update] Goldman Sachs and UnitedHealth Group are among the highest-priced stocks in the average and therefore have the greatest influence on it.
For instance, a company may be removed from the index when its market capitalization drops because of financial distress. Because its components are among the biggest public companies, the DJIA can be a proxy for the performance of the overall U.S. economy. When you buy a single share of a DJIA index fund, your portfolio gets exposure to all 30 of the Dow components.
The Dow Jones Averages are owned by S&P Dow Jones Indices LLC, a joint venture between S&P Global and the CME Group. The Dow Jones Industrial Average hit 10,000 for the first time in March 1999. The DJIA then hit 11,750 in January 2000, before falling to below 7,200 in October 2002 after the dot-com crash. “The current choppiness will prove to be just that, not the sign of a new bear market,” Ned Davis Research said.
Companies of the US 30
The index, however, only has 30 companies, and the index itself is price-weighted, meaning that it does not always present an accurate reflection of the broader stock market. The Dow Jones Industrial Average, also known as the Dow, is one of the most popular stock market indexes, along with the S&P 500 and Nasdaq Composite. The Dow tracks the stock performance of 30 large, blue-chip companies.
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It is an index that helps investors determine the overall direction of stock prices. It is more popular than both the S&P 500 Index, which tracks 500 stocks, and the Nasdaq Composite Index, which includes more than 2,500 U.S. and international equities. In early 1981, the index broke above 1,000 several times, but then retreated.
- This can create some unique situations, such as a company with a smaller market cap than other companies in the index having a larger weight because its share price is higher.
- Besides the famous Dow Jones Industrial Average, the company also created various other market averages.
- Industrial companies’ performance is often seen as synonymous with that of the overall economy, making the DJIA a key measure of broader economic health.
- What is more, these financial news outlets maintained considerable independence from News Corp.
What Is the Dow Jones Industrial Average (DJIA)?
The companies in the Dow provide many jobs and its goods and services are used by many if not most Americans. The table below alphabetically lists the companies included in the DJIA as of June 2024. Dow Jones & Company is the firm founded by Charles Dow, Edward Jones, and Charles Bergstresser in 1882, not the people themselves. Charles Dow and Edward Jones ran the company themselves in the early years and built a reputation for integrity. When Dow died in 1902, Clarence Barron and Jessie Waldron bought the company, and control eventually passed to the Bancroft family. In 2007, News Corp. purchased Dow Jones & Company from the Bancrofts.
Alternately, Cisco Systems and Coca-Cola are among the lowest-priced stocks in the average and have the least sway in the price movement.[84] Critics of the DJIA and most securities professionals[who? ] recommend the market-capitalization weighted S&P 500 Index or the Wilshire 5000, the latter of which includes most publicly listed U.S. stocks, as better indicators of the U.S. stock market. The Dow tracks volatility skew trading strategies the stock performance of 30 blue-chip, American companies.
They included the oldest index, the Dow Jones Transportation Average, which tracks 20 transportation companies, such as airlines and delivery services. Another major index is the Dow Jones Utility Average, which tracks 15 U.S. utility stocks. The value of the index can also be calculated as the sum of the stock prices of the companies included in the index, divided by a factor, which is approximately 0.152 as of April 2024[update]. The factor is changed whenever a constituent company undergoes a stock split so that the value of the index is unaffected by the stock split. The DJIA launched in 1896 with just 12 companies, primarily in the industrial sector. Since then, it’s changed many times—the very first came three months after the 30-component index launched.
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The index, which is also called the Dow 30 or just “The Dow”, is different from many other leading indexes. It is handpicked by a committee, price-weighted, and calculated by adding up all the stock prices of its 30 components and dividing the sum by the Dow Divisor. Its constituents are chosen by a committee and it is price-weighted, meaning each company’s stock is weighted by its price per share.
Often referred to as “the Dow,” the DJIA is one of the most-watched stock indexes in the world, containing companies such as Apple, Boeing, Microsoft, and Coca-Cola. On March 29, 1999, the average closed at 10,006.78, its first close above 10,000. This prompted a celebration on the New York Stock Exchange trading floor, complete with party hats.[55] Total gains for the decade exceeded 315%; from 2,753.20 to 11,497.12, which equates to 12.3% annually. Individuals can invest in the Dow, which would mean gaining exposure to all of the companies listed in it, through exchange-traded funds (ETFs), such as the SPDR Dow Jones Industrial Average ETF (DIA). Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. It is called the Dow 30 because it was created by Charles Dow (with Edward Jones) and consists of 30 companies.
The Dow expanded to 20 stocks in 1916 and then 30 stocks in 1928. As this list illustrates, the economy of 19th-century America was much more focused on the production of commodities. On the other hand, Dow Jones & Company no longer directly controls the Dow Jones Averages that it originally created.