Definition
The Dow Jones Industrial Average (DJIA), often referred to simply as “the Dow,” is a stock market index that measures the stock performance of 30 large, publicly-owned companies trading on stock exchanges in the United States. Introduced by Charles Dow on May 26, 1896, the DJIA is one of the oldest and most widely recognized indices globally. It acts as a benchmark for the overall health of the US stock market and the economy.
Key Characteristics:
- Composition: The DJIA includes 30 companies from various sectors, excluding utilities and transportation.
- Measurement: It is a price-weighted index, meaning stocks with higher prices have more influence on the index’s movement.
- Representation: The index is seen as a proxy for the broader US economy, although it comprises only 30 companies.
Examples
Examples of companies that were part of the DJIA in 2011 include:
- Aluminum Company of America (ALCOA)
- American Express
- AT&T
- Bank of America
- Boeing
- Caterpillar
- Chevron Corporation
- Cisco System
- Coca-Cola
- Disney
- DuPont
- Exxon Mobil
- General Electric
- Hewlett-Packard
- Home Depot
- IBM
- Intel
- Johnson & Johnson
- JPMorgan Chase
- Kraft Foods
- McDonald’s
- Merck
- Microsoft
- Pfizer
- Procter & Gamble
- 3M
- Travelers Companies
- United Technologies
- Verizon
- Wal-Mart
Frequently Asked Questions
1. How is the DJIA calculated? The DJIA is calculated by adding up the prices of all 30 stocks in the index and dividing the total by a divisor which accounts for stock splits and other adjustments.
2. Why are only 30 companies included in the DJIA? The DJIA aims to include a representative sample of leading companies in various industries, making adjustments as necessary to reflect changes in the economy.
3. How is the DJIA different from other indices like the S&P 500? The DJIA is a price-weighted index with 30 large-cap companies, whereas the S&P 500 is a market-cap-weighted index that includes 500 companies.
4. Has the composition of the DJIA changed over time? Yes, the components of the DJIA are periodically reviewed and adjusted to reflect current market and economic conditions.
5. What sectors are represented in the DJIA? The DJIA covers sectors like technology, financial services, consumer goods, healthcare, industrials, energy, and more, but it excludes utilities and transportation.
Related Terms
- Benchmark: A standard by which something can be measured or judged, often traded as stock market indices.
- S&P 500: A market-cap-weighted index of 500 of the largest companies listed on stock exchanges in the United States.
- NASDAQ Composite: An index representing the performance of over 2,500 stocks listed on the NASDAQ stock exchange.
- Market Indices: A group of stocks that are used to represent a segment of the market.
Online Resources
- Investopedia - Dow Jones Industrial Average (DJIA)
- Wikipedia - Dow Jones Industrial Average
- The Wall Street Journal’s Market Data
Suggested Books for Further Studies
- “The Dow Jones-Irwin Guide to the Dow Theory” by Robert Rhea
- “The Age of Turbulence: Adventures in a New World” by Alan Greenspan
- “Common Stocks and Uncommon Profits” by Philip A. Fisher
- “The Little Book of Common Sense Investing” by John C. Bogle
Fundamentals of Dow Jones Industrial Average (DJIA): Stock Market Basics Quiz
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