Dow Jones Industrial Average Stock Market Index: Definition, Members

To keep it simple, assume that there is a stock market in a country that has only two stocks trading (Ally Inc. and Belly Inc.—A & B). How do we measure the performance of this overall stock market on a daily basis, as the stock prices are changing each moment and with every price tick? Instead of tracking each stock separately, it would be much easier to get and track a single number representing the overall market constituting both stocks.

In August 2020, Exxon Mobil, the longest-tenured member of the Dow, was dropped and replaced by Salesforce, a cloud-based software company. Exxon joined the Dow in 1928 as Standard Oil of New Jersey and remained there, albeit with a couple of name changes, for 92 years. The make-up of the DJIA has changed over the years too, with stocks being added or taken off. S&P Dow Jones Indices (a division of Dow Jones) and selected editors of The Wall Street Journal change the roster when they feel an update is warranted.

The DJIA tracks the price movements of 30 large companies in the United States. The selected companies are from all major U.S. sectors, except utilities and transportation. Certain corporate actions, like dividend going ex (i.e., becoming an ex-dividend, wherein the dividend goes to the seller rather than to the buyer), can lead to a sudden drop in DJIA on the ex-date. High correlation among multiple constituents also led to higher price swings in the index. As illustrated above, this index calculation may get complicated on adjustments and divisor calculations. Until there is any change in the number of constituents or any corporate actions affecting the prices, the existing divisor value will hold.

Who Is Dow Jones?

The index is maintained by S&P Dow Jones Indices, an entity majority-owned by S&P Global. The ten components with the largest dividend yields are commonly referred to as the Dogs of the Dow. As with all stock prices, the prices of the constituent stocks and consequently the value of the index itself are affected by the performance of the respective companies as well legacy fx as macroeconomic factors. 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 0.153 as of February 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 result of the calculation is the Dow Jones Industrial Average (DJIA) "close" for that day. For example, on Dec. 11, 2020, the Dow closed at 30,046.37, up 47.11 ($47.11) from the previous day, or +0.16%. The Nasdaq 100 Index aggregates 100 of the largest and most actively alvexo review traded non-financial domestic and international stocks traded on the Nasdaq Stock Market. The Dow Jones Industrial Average, also known as the DJIA or simply the Dow, is a market index frequently used to gauge the overall performance of the U.S. stock market.

It is an index that helps investors determine the overall direction of stock prices. The DJIA initially launched with just 12 companies based mostly in the industrial sectors. The original companies operated in railroads, cotton, gas, sugar, tobacco, and oil.

Understanding the Dow Jones Industrial Average (DJIA)

A stock index can also serve as a benchmark for investment comparisons. For example, let's say your individual portfolio of stocks (or your mutual fund) returned 15%, but the market index returned 20% during the same period. As a result, your portfolio's performance (or your fund manager's performance) would be lagging behind the market. The shares included in it are weighted according to price; the index level represents the average of the shares included in it.

1. As a result, your portfolio's performance (or your fund manager's performance) would be lagging behind the market.
2. Over the years the index evolved, expanding to 30 companies and including every major industrial sector except transportation, utilities, and real estate.
3. High correlation among multiple constituents also led to higher price swings in the index.
4. Some of the Dow's power and influence is due to its sheer venerability as the second-oldest stock market index.

This movement gives investors and traders a way to track the market based on the changing prices of those 30 stocks. The DJIA appears widely on financial and other news websites every day. The DJIA is a stock index that tracks the share prices of 30 of the largest U.S. companies. Like the S&P 500, the DJIA is often used to describe the overall performance of the stock market. The Dow is not calculated using a weighted arithmetic average and does not represent its component companies' market cap unlike the S&P 500. Rather, it reflects the sum of the price of one share of stock for all the components, divided by the divisor.

Trading is typically carried out in an open outcry auction, or over an electronic network such as CME's Globex platform. As of 2022, Dow Jones & Company continued to be a major source of financial news. Its publications included MarketWatch, Barron's, and, of course, The Wall Street Journal. What is more, these financial news outlets maintained considerable independence from News Corp. Companies in the DJIA are also chosen by a committee and are balanced to try to represent the state of the overall economy. This means that certain companies may be added to or deleted from the index periodically without much in the way of being able to predict when or which stock will be changed.

Divisor Value

That is, assuming the stock prices from the old index are held constant, the addition of a new stock price should not affect the index. Investors may own a handful of stocks within their investment portfolio in which they track each stock's individual performance. However, the performance of a small portfolio is not indicative of the overall market. Investors also need information about market sentiment, which is where a stock index can be helpful. But historically, the Dow has generally tracked U.S. gross domestic product, an overall measure of economic activity.

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. This gives you easy exposure to companies that have a proven track record of returns and solid business practices. These stocks are from large companies with long histories of strong performance.

Having such a small view could distort what the broader market is signaling. The S&P 500 itself has several requirements around things such as the company’s market capitalization, where the stock trades, profitability and trading volume. The Dow's unusual price-weighting (versus market-cap-weighting) system has weathered criticism almost from the index's inception in 1896. Still, despite this and its relatively small number of component stocks, the Dow Jones Industrial Average is one of the most-respected market indexes in the world. It may not have as many stocks as some other indexes, but what it has is choice — a representative cross-section of corporate America's major players. And, as noted above, the roster does periodically change, representing the rise or fall of different sectors.

The Dow Jones Industrial Average (DJIA) is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange (NYSE) and Nasdaq. The Dow Jones is named interactive brokers forex review after Charles Dow, who created the index in 1896 along with his business partner, Edward Jones. Also referred to as the Dow 30, the index is considered to be a gauge of the broader U.S. economy.

The table below alphabetically lists the companies included in the DJIA as of June 2022. Although the Dow Jones Industrial Average rarely changes, there are occasional additions and deletions. These changes often come in batches and always keep the total membership at 30 companies. 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.

The Dow is also a price-weighted index, as opposed to being weighted by market capitalization. This means that stocks in the index with higher share prices have greater influence, regardless if they are smaller companies overall in terms of market value. This also means that stock splits can have an impact on the index, whereas they would not for a market cap-weighted index. This means companies with a higher share price have a larger effect on the average, regardless of the company's actual size. For example, Goldman Sachs was trading around $177 on May 12, 2020, while Pfizer was around $37. However, Pfizer's' market capitalization was $207 billion compared to Goldman's $60 billion.