Dow(n) Jones Average
The Dow Jones Industrial Average closed today at its lowest level since October, 2002. You frequently hear that phrase, or simply “the Dow” on the news, but what does it really mean? Dow Jones publishes many indexes, but the most popular and easiest to reference is the Dow Jones Industrial Average (or DJIA). The DJIA is an index of just 30 stocks, but they are selected as a way to properly reflect the overall U.S. market and the economy. When a company becomes less relevant (such as Goodyear Tire), it may be removed and replaced by something more reflective of the current overall market (Intel, Microsoft, etc.). Also, the index began in 1896 with just 12 stocks, expanded to 20, then to 30 in 1928. (Source: djaverages.com)
“Roughly two-thirds of the DJIA’s 30 component companies are manufacturers of industrial and consumer goods. The others represent industries as diverse as financial services, entertainment and information technology. Even so, the DJIA today serves the same purpose for which it was created – to provide a clear, straightforward view of the stock market and, by extension, the U.S. economy.” (Source: djaverages.com)
All of the stocks in the DJIA index are well known and actively traded, including Proctor & Gamble, Coca-Cola, ExxonMobil, and WalMart to name a few. Because of splits, stock additions, removals, etc., the numbers in the index (currently sitting at 7,465) are arrived using a divisor from the actual point fluctuations of the underlying stocks. Currently, a 1-point move in a Dow stock accounts for about 8 points in the DJIA. (Source: djaverages.com)
Other popular U.S. indexes are the NASDAQ (over 3,000 stocks) and the S&P 500 (yes, 500 stocks).
Bonus info: Finance reporters and people in the industry are afraid to say anything is “down” which implies losing money, so you’ll often hear the phrase “the Dow is OFF 100 points.” ”Off” means “down” but nobody says “on” – it’s still just “up.”
Read on:
djaverages.com – DJIA Overview
djaverages.com – Calculating the Averages
CNNMoney.com – Current 30 stocks in the DJIA
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