Dow Jones Index

The Dow Jones Index is the oldest among existing American market indices. He was created by The Wall Street Journal editor and Dow Jones & Company founder Charles Dow to track the development of American stock markets.

The index was first published on May 26, 1896. Initially, the index was calculated as the arithmetic average of the stock prices of the 12 largest companies.

Today, a scalable average is used for calculation to maintain the comparability of the index taking into account changes in the internal structure of the shares included in it.

The Dow Jones Index currently covers about 30 of the largest companies in the United States. It is the simplest and most commonly used indicator of the state of the US economy.

The list of companies covered by the Dow Jones Index is reviewed with the development of the stock market situation. This list is compiled by the editorial board of The Wall Street Journal.

Generally, the Dow Jones Index is used as an objective indicator of the entire American stock market. But this oldest index has a number of flaws that make it less and less popular, despite its classical nature.

The Dow Jones Index was founded on May 26, 1896 by Charles Dow. After formation in the index there were only 12 companies, and now - 30.

These companies are part of all industries except transportation, water and power supply. The selection of companies for the index was carried out exclusively by Charles Dow himself. After the selection were made by the editors-in-chief and analysts of The Wall Street Journal.

The following companies are a part of the Dow Jones index: 3M, American Express, Apple, Boeing, Caterpillar, Chevron, Cisco Systems, Coca-Cola, DuPont, ExxonMobil, General Electric, Goldman Sachs, Home Depot, Intel, IBM, Johnson & Johnson, JPMorgan Chase, McDonald's, Merck, Microsoft, Nike, Pfizer, etc.

The Dow Jones Index is one of the world 's largest stock indices, which is calculated in the United States and reflects the state of American industry.

The full name of this figure is the Dow Jones Industrial Average. This is the first stock exchange index invented in the United States in the second half of the 19 century by Charles Dow, founder of Dow Jones & Company together with the editor of the largest American publication Wall Street Journal Edward Jones (by the way, this newspaper is still engaged in the revision of companies included in the calculation of the indicator). The Dow Jones Index was first officially published in 1896, and before that from 1884 there was already its first version, which was not published anywhere, but was used by its authors for analytical research.

The very first published Dow Jones Index was the arithmetic average of the shares of the 12 largest industrial companies in the United States.

By the way, it is interesting that today 's Dow Jones index includes only one of these companies - General Electric.

At the beginning of the 20 century, the number of companies in the index was first increased to 16 and then to 30 it remains today. From time to time, companies were rotated in the index - new companies replaced old ones.

At the moment, the Dow Jones Index includes the value of common shares of the 30 largest US enterprises of different industries. Among them are industrial corporations, oil and gas companies, chemical and pharmaceutical industry enterprises, food industry enterprises, telecommunication enterprises, chain of catering restaurants, entertainment industry enterprise, financial, credit, insurance companies, payment system, etc.

Shares of almost all of these companies are listed on the NYSE New York Stock Exchange, and three companies are listed on the Nasdaq Exchange. At the same time, the total capitalization of the companies included in the Dow Jones index is about 15% of the capital of all companies listed on the stock exchange.

Whereas the Dow Jones index was originally calculated as a simple arithmetic average of the price of all the shares included in the indicator, now the calculations have become a little more complicated, and this is already a scalable average, which allows to take into account changes taking place in the internal structure of the securities taken into account.

That is, the current Dow Jones index shows the average value of shares in the shares of capital that were selected for calculation at the time of approval of the composition of the indicator. Thus, the denominator of the calculation formula is constantly changing, which makes it possible to bring the Dow Jones index as close as possible to the real structure of the American economy.

The Dow Jones Index shows how the stock value of the 30 largest companies in the United States is changing. It can be considered the main indicator of the American economy, an indicator of business activity not only in the United States, but also in the world, because the companies included in the index are widely represented around the world.

When the Dow Jones Index grows - it indicates an increase in business activity, an improvement in the investment climate, an increase in demand for shares of American companies by investors. Investors buy shares, predicting that they will grow in price and generate income in the form of dividends. Accordingly, if the Dow Jones index is rising, companies "profits are projected to grow, and, to some extent, the growth of the US and global economy. If the Dow Jones index is falling, the opposite is true.

Although the Dow Jones index is still seen as a major indicator of the global economy, it has its flaws.

The main one is a relatively small number of companies whose securities are included in the calculation of the indicator - there are only 30. For this reason, to draw more precise conclusions, investors and analysts often view the Dow Jones index combined with the S & P 500 index, which includes shares in 500 US companies already.

In addition, despite changes in the methods of calculating the indicator, many consider it imperfect. For example, because in the calculation of the Dow Jones index, only the current value of shares is taken into account, without comparison with its original value or some basic value on a certain date, as in the calculation of some other indices. Also, the value of the indicator is more influenced by the most expensive securities included in the index, rather than all equally.

Since September 20, 2013, the Dow Jones Index includes the following 30 companies (after the name in parentheses, the company 's quotation exchange and ticker are listed).

So it was the calculation technique that demonstrated weaknesses in the Dow Jones index. If one company has a higher share value, but less capitalization than others, then the index will have a more significant impact, which may not make it somewhat objective. In addition, even the most influential corporations, represented in the amount of only 30 pieces, cannot give an accurate idea of the situation in the market. Either way, the index is still recognized as a reliable barometer of the US economy because it is time-tested.

Dow Jones 'highest index result was noted on May 19, 2015, on which day the index reached an intraday historic high of 18,351.36. The maximum closing of the index took place on the same day at 18,312.39.