It’s largely considered a bellwether of the broader U.S. economy’s performance and is one of the most closely watched stock indexes in the world. On Dec. 13, 2023, The Dow hit a new all-time high, and continued to hit new highs in the days after. The Dow Jones Industrial Average (DJIA), also commonly referred to as “the Dow Jones” or simply “the Dow,” is one of the most popular and widely recognized stock market indices.

He was also a firm believer in using the price movements of different stocks to predict market movements. He ended up creating a number of the benchmark market averages—still in use today—to indicate whether the stock market is rising or falling. The Dow Jones Industrial Average, also known as the Dow, is one of the most popular stock market indexes, along with the S&P 500 and Nasdaq Composite. We believe everyone should be able to make financial decisions with confidence. And while our site doesn’t feature every company or financial product available on the market, we’re proud that the guidance we offer, the information we provide and the tools we create are objective, independent, straightforward — and free. The components of the DJIA are formally reviewed periodically by a committee, and a company can be replaced to ensure the composition of the index (and performance) reflects the current financial markets and economic landscape.

1. Originally, the Dow Jones Industrial Average index (DJIA) was composed of merely twelve companies in the industrials sector.
2. As of June 2021,[update] Goldman Sachs and UnitedHealth Group are among the highest-priced stocks in the average and therefore have the greatest influence on it.
3. When the DJIA launched in 1896, it was comprised of only 12 US companies that were mainly engaged in industrial activities.
4. Furthermore, critics believe that factoring only the price of a stock in the calculation does not accurately reflect a company, as much as considering a company’s market cap would.

Furthermore, critics believe that factoring only the price of a stock in the calculation does not accurately reflect a company, as much as considering a company’s market cap would. In this manner, a company with a higher stock price but a smaller market cap would have more weight than a company with a smaller stock price but a larger market cap, which would poorly reflect the true size of a company. While the Dow Jones Index and the S&P 500 are among the world’s most popular stock market indices, both tend to perform differently at key junctures in the economic cycle. To take an example, the Dow is up 5.8% so far this year, while the S&P 500 is up 17% over the same period.

U.S. Equities Market Attributes December 2023

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. The DJIA was created to measure the movements of the leading companies in the United States engaged in industrial activities. It uses the price-weighted index, meaning that stocks with a higher share price carry a greater weight in the index than stocks with a low share price.

But in the Dow, it has just the 16th largest weight, which is based on its share price of about $147. UnitedHealth Group has the largest weight in the Dow because of its $483 share price despite having a market cap that is less than 25 percent of Apple’s. The other prominent stock market indices, notably the S&P 500 and Nasdaq composite, are weighted by market capitalization.

It measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the  New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. The DJIA is one of the stock indices created by Dow & Jones Company founder and Wall Street Journal editor Charles Dow. As such, the highest-priced stocks have a greater effect on the level of the index, which critics say can provide a distorted picture of the stock market and the overall economy. NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only.

The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. In spite of the aforementioned shortcomings, the Dow Jones index (DJIA) still remains one of the most frequently tracked stock market indices among market participants and equity analysts. While the Dow Divisor normalizes against corporate actions that could skew the index price, the calculation is still prone to placing “more weight” on the highest-priced stocks.

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It is also closely watched by investors, strategists, commentators and others because of its age and because of the prominence of its component stocks. On September 15, 2008, a wider financial crisis became evident when Lehman Brothers filed for bankruptcy along with the economic effect of record high oil prices which had reached almost $150 per barrel two months earlier. The value of the index is calculated as the sum of the stock prices of its component companies, divided by a factor known as the Dow Divisor (currently 0.152). The factor is changed whenever a constituent company undergoes a stock split so that the value of the index remains unaffected.

Salesforce, Amgen and Honeywell International replaced Exxon Mobil, Pfizer and Raytheon Technologies. Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, axi review Comps and Excel shortcuts. That attribute, coupled with the fact that the only 30 companies comprise the index, is a common source of criticism, since the overall performance can be concentrated on a select few companies.

This list includes investable products traded on certain exchanges currently linked to this selection of indices. While we have tried to include all such products, we do not guarantee the completeness or accuracy of such lists. Please refer to the disclaimers here for more information about S&P Dow Jones Indices’ relationship to such third party product offerings.

The company must also be headquartered and incorporated in the US, and have a plurality of its revenue from the country. It must also help the index maintain its desired exposure to the sector. Because the Dow is limited to 30 companies, when one company enters the index, another must leave. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average were all set to open lower on Monday as investors trimmed their bets after a bumper week.

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NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. The Dow Jones (DJIA), or “Dow Jones Industrial Average”, is a price-weighted stock market index tracking the share price movements of 30 publicly traded, blue-chip companies.

The Dow tracks the stock performance of 30 blue-chip, American companies. The index is price-weighted and dates back to 1896, making it one of the oldest stock market indexes. It’s not as diversified as broader indexes like the S&P 500, but it still provides a picture of how the stock market and large businesses are performing. The price level of https://forexhero.info/ the Dow is calculated by adding the share prices of the companies in the index and dividing by the Dow divisor, a figure that is adjusted periodically for corporate actions such as dividend payments and stock splits. The Dow Jones Industrial Average, or DJIA, is a stock market index that includes 30 blue-chip companies from different industries.

Dow Jones Index (DJIA)

Initially, the Dow calculated the averages by adding the stock prices of the 12 companies and dividing by 12. Later on, the calculation of the index was changed to reflect the relative importance of each component based on what percentage of the index’s total value it represents. So a higher percentage move in a higher-priced component will have a greater impact on the final calculated value. At the Dow’s inception, Charles Dow calculated the average by adding the prices of the 12 Dow component stocks and dividing by 12. Over time, there were additions and subtractions to the index that had to be accounted for, such as mergers and stock splits. Also, the use of a price-weighted index as opposed to a market-weighted index gives an advantage to some DJIA components over others.

As of November 2023, the following list contains the companies that serve as the underlying components of the Dow Jones index. Over the last 10 years, the Nasdaq 100 averaged 18.34% annual returns while the DJIA averaged 11.11%. Keep in mind that the Nasdaq 100’s strong returns are in large part due to its large weighting in tech stocks.

Trading is typically carried out in an open outcry auction, or over an electronic network such as CME’s Globex platform. 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. Despite its limitations, however, the Dow still holds a special place in American finance. The e-commerce giant will replace Walgreens Boots Alliance Inc. in the 30-stock gauge, according to a press release from S&P Dow Jones Indices.

Instead, an independent Wall Street Journal commission decides whether a share is to be included or excluded. There are no fixed times for reviewing the composition of the index, since changes are only made by the commission as and when they are needed. The Dow Jones Industrial Average® (The Dow®), is a price-weighted measure of 30 U.S. blue-chip companies.