US market index Dow Jones
The Dow Jones Industrial Average was established in 1896. Dow Jones is the American market index that includes 30 large and reputable public companies, as it is usually used and adopted to measure the stock market in general. Usually some stocks go up, and some others go down. But how did the “market” perform in general? Indices aggregate a specific group of stocks so you can get a quick idea of the market’s movements and performance. Created in 1896 by Charles Dow and Edward Jones, the Dow index consists of 30 large US companies, which are selected from time to time by a selection committee. Thirty companies tend to be large, profitable, and have long track records as publicly traded companies. The index is calculated using a weighted average of the thirty stock prices. when people say That the markets were on the rise, they often referred to the Dow Jones as the American market index. So what is the Dow Jones index?
What is the Dow Jones index?
US market index companies Dow Jones
If a company is a member of the Dow Jones index, it is officially a preferred stock. The “industrial” part of the Dow’s full name was more descriptive of its past than its present. Today, Dow Jones’ 30 members include industrial and non-manufacturing companies covering a balanced mix of sectors.
Although there are no formal criteria for determining which stock is the “leader” or who joins the 30-member Dow club, the selection committee looks for US-based companies with good reputations and sustainable growth. Their shares must also be listed on the New York Stock Exchange or NASDAQ. The selection committee makes changes to the index from time to time. In May 2019, General Electric was removed from the index and replaced by Walgreens.
As of September 2020, the 30 Dow Jones US Market Index companies include the following:
MMM 3M Co
AXP American Express
AMGN Amgen Inc
AAPL Apple
BA Boeing
CAT Caterpillar
CVX Chevron Corp
CSCO Cisco
KO Coca-Cola
DIS Disney
DOW Dow Chemical
GS Goldman Sachs
HD Home Depot
HON Honeywell International Inc
IBM IBM
INTC Intel
JNJ Johnson & Johnson
JPM JPMorgan Chase
MCD McDonald’s
MRK Merck
MSFT Microsoft
NKE Nike
PG Procter & Gamble
CRM Salesforce
TRV Travelers Companies Inc
UNH UnitedHealth
VZ Verizon
V Visa
WMT WalMart
WBA Walgreens
How is the Dow Jones index calculated?
The Dow Jones index reflects the US market movements and stock performance of all components of the 30 club members. Since it is a price-weighted index, higher priced stocks move the index further. The index is then calculated by adding up the stock prices of all 30 members and dividing that amount by a number called the “Dow Divisor”. At one time, Kassim Dao was a fixed number. When the Dow Jones index was created in 1896, the arithmetic was very simple: stock prices (at the time) made up of 12 components were added up and then divided by 12.
Today, it’s a little more complicated. Dow Divisor has become more sophisticated, with adjustments made to account for corporate actions that affect prices such as stock splits or earnings. The Dow Divisor is set by the index administrator to ensure that the index remains stable when company actions occur, so it is useful to compare these adjustments over time. In this way, the index rises and falls based on the underlying stock prices of the 30 members, and not on complex corporate actions such as stock splits, stock dividends, or rights offerings. Dow Divisor index companies are adjusted when companies take some actions or know some changes to keep the index consistent. And companies with higher stock prices often affect him more.
For example: if Dow Member No. 1 stock rises from $100 to $110, and Dow Member No. 2 falls from $11 to $10, the Dow will generally rise because stocks with larger prices move the index more. Even though member #1 is up 10% and member #2 is down 10% in this example, what it shows is that the Dow Jones index is up.
What is the difference between the Dow Jones index and the NASDAQ stock index?
The Nasdaq Composite is the third largest US stock index and tends to be mentioned at the top of US market news (usually alongside the Dow Jones and S&P 500). The NASDAQ does not reflect the broader US stock market, as the Dow tries to do. That’s because its membership is mostly made up of technology companies. For this reason, the NASDAQ is a better gauge of how tech stocks are doing, rather than the broader stock market.
The Nasdaq rose from less than 1,000 in 1995 to more than 5,000 in 2000 as a result of the dot-com bubble, as investors bought shares of technology companies during that period in an unsustainable way. When the bubble “burst” from 2001 through 2002, the Nasdaq fell back almost to 1000.
During the same period, the Dow Jones had risen from 1995-2000 and fell during 2001 and 2002, but the ups and downs were not as large as the Nasdaq, as the dot-com bubble mainly affected stocks of technology companies.
What is the pattern of change in the Dow Jones index over time?
Industrial beginnings:
When the Dow was created in 1896, it was truly an industry benchmark. Its 12 members were chosen to reflect the giants of American industry at the time and included companies in tobacco, lead, leather, rubber, animal feed and oil. From then until May of 2019, the Dow Jones Index changed its membership 54 times. Now, it is evolving to include more diversified companies.
Over time, the index has expanded to include 30 members today. It also changed its composition to reflect the changing US economy. According to the Bureau of Economic Analysis, manufacturing made up only 11% of the US economy in 2018. So for the Dow to better reflect the US economy, it had to evolve away from purely industrial companies.
As of May 2019, Dow includes companies from a range of different business sectors. Below is a chart showing its membership categories taken directly from the Dow fact sheet:
What is the Dow Jones index?
It never hurts if you get to know more about what the Dow Jones Index is and some basic information about it.
How did the Dow Jones Industrial Average get its name?
Charles Dow and Edward Jones founded the Dow Jones Index in 1896. Dow and Jones actually founded the Wall Street Journal in 1889.
Longest member
GE was a member of Dow from its inception in 1896 until 2018.
Biggest percentage gain in one day
The Dow Jones rose by 11.1% on October 13, 2008 on news that European regulators were going to bail out some financial institutions that were struggling from the financial crisis.
The largest percentage loss for one day
The Dow Jones lost 22.6% on October 19, 1987 in what is now known as “Black Monday”.
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