Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is one of the most popular and widely recognized stock market indices. The Dow reflects changes taking place in the U.S. market. It is created by grouping "30 stocks" among the securities from "9" different sectors listed on the exchange (NASDAQ or NYSE).

Dow Jones or DJIA helps the investors / traders to analyse the overall market sentiments, you can say the DJIA act as an alarm for the investors. As of 2021, the Dow Jones constitute of 30 stocks and all these companies are considered as the market leader in their sectors. The DJIA is one of the oldest stock indexes and its components (stocks) are selected by a committee and maintained by S&P Dow Jones Indices

Quick Overview— DJIA

Sector breakdown

As of 2021, the Dow Jones includes 30 companises from 9 different sectors which are as follows :

1. Industrial
2. Technology
3. Energy
4. Financial
5. Health Care
6. Basic Materials
7. Consumer Services
8. Tele Communications
9. Consumer Goods

Other Major Market Indexes

S&P 500 Index : Tracks slightly over 500 of the largest U.S. stocks
NASDAQ composite : Tracks every stock traded on the NASDAQ stock market exchange
Russell 2000 Index : Tracks 2000 small-cap and mid-cap stocks
Wilshire 5000 : Currently tracks 3500 stocks but it hold 5000 stocks when first introduced in 1974

How the DJIA works?

Unlike other stock market indexes which are calculated by market - capitalization, the Dow Jones Industrial Average is calculated by price - weighted instead.

To calculate the DJIA, the price of the 30 stocks in the index are added together and then divided by a divisor, known as the Dow Divisor.

The value of Dow Divisor is not fixed, it has changed significantly over the years. As of 2018 the value of Dow divisor is 0.14748071991788.

Initially, there were only 12 stocks in the Dow Jones, but over the time it changes upto 30 stocks(as of 2021).

The original 12 Dow Jones stocks

1. American Cotton Oil Company
2. American Sugar Company
3. American Tobacco Company
4. Chicago Gas Company
5. Distilling & Cattle Feeding Company
6. Tennessee Coal & Iron
7. General Electric
8. U.S. Rubber Company
9. U.S. Leather Company
10. North Lead Company
11. National Lead Company
12. Laclede Gas Company

• Averages exclude everything
• The averages must agree with one another.
• The trend must be confirmed by volume (volume must expand in the direction of the major trend).
• A trend is assumed to be in effect until it provides clear evidence that it has reversed.

A lot investors prefer to watch S&P 500 which is market-cap weighted instead of price-weighted DJIA.
It is important to look at other indexes in order to get a more complete picture of the market.

But at the same time don't overlook the DJIA because the stock market is the place where economy is less important than what people think is important. Remember!!! "Trend is your friend"

Every individual entity (broker, institutions, banks, retailers) ia trying to figure out what others are going to do. Hence for every investor it is important to watch because other entities are also watching The Dow.

FAQs on DJIA