Dow Jones is one of the biggest stock market indices. The index lists and tracks the performance of the top 30 traded stocks in the U.S stock market. The index is mostly made of large blue-chip companies with market cap running into hundreds of billions of dollars.
Dow Jones History
The index is named after Charles Dow, who created it in 1896 in partnership with Edward Jones. At first, the index listed 12 companies, primarily in the industrial sector. The index has since been expanded to 30 companies, most of which are leaders in their respective fields of operation.
Currently, components in the Dow Jones Industrial average are chosen from all sectors of the economy, with the exception of the transportation and utility industry. The roster includes Apple, Microsoft, and Goldman Sachs Coca Cola among others.
Calculation of the Dow Jones Industrial Average
Dow Jones Industrial Average is a price-weighted index. What this means is that stocks with higher share prices are given greater weight than others. The weights are calculated by dividing the stock prices by a special divisor called Dow Divisor.
Likewise, the index's value is mainly affected by stock prices and stocks with higher share prices.
Why the Dow Matters?
The Dow Jones Industrial Average is one of the most quoted financial barometers in the world. Likewise, when people say the market has gone up or down in most cases, they would be referring to the index.
When you want to know how the U.S economy is doing, it would be wise to look at the Dow. The index components are companied that wield too much power in various sectors. Likewise, if the companies are doing well in most cases, the economy would also be doing well. However, some economists insist you cannot paint an accurate picture of the economy by simply reading the performance of 30 companies.
