What Is the Dow Jones Industrial Average DJIA?

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. Abbott Laboratories launches a high-protein shake to help people maintain muscle mass while pursuing weight loss, one of a wave of such products expected to come to market amid strong demand for new weight-loss drugs. The Dow Jones Industrial Average was down 0.1% after staying in the positive territory most of the day. The tech-heavy Nasdaq Composite lost 1.6%, pressured from losses in Alphabet’s stock.

In the world of finance, you’ll often hear people ask, “How did New York do today?” or “How did the market perform today?” In both cases, these people are likely referring to the DJIA, as it is the most widely-used index. It is more popular than both the S&P 500 Index, which tracks 500 stocks, and the Nasdaq Composite Index, which includes more than 2,500 U.S. and international equities. Companies are replaced when they no longer meet the index’s listing criteria with those that do. Over time, the index became a bellwether of the U.S. economy, reflecting economic changes. Steel was removed from the index in 1991 and replaced by building material company Martin Marietta.

1. There is no set cadence for updating the companies that make up the Dow.
2. Many critics believe the S&P 500 is a better representation of the economy as it includes significantly more companies, 500 versus 30.
3. 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.
4. But historically, the Dow has generally tracked U.S. gross domestic product, an overall measure of economic activity.
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Today, the DJIA is a benchmark that tracks American stocks that are considered to be the leaders of the economy and are on the Nasdaq and NYSE. The DJIA covers 30 large-cap companies, which are subjectively picked by the editors of The Wall Street Journal. At a broad level, the DJIA’s composition changes over time based on economic trends and company performance. The Dow doesn’t have a lot of specific rules to decide how a stock gains entry to the index. While its composition of only 30 companies is often criticised as an inadequate representation of the enormous US stock market, the Dow is widely considered a reliable gauge of the health of the world’s largest economy.

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. The Dow tracks the stock performance of 30 large, blue-chip companies. 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. The Dow’s approach is unlike other leading indexes used to track the overall performance of the stock market, like the S&P 500 or the Nasdaq Composite. These consider a company’s market capitalization when determining how much influence it will have in an index.

The Dow Jones Industrial Average (DJIA)

Since then, it’s changed many times—the very first came three months after the 30-component index launched. The first large-scale change was in 1932 when eight stocks in the Dow were replaced. Now, let’s say that one of the stocks in the IMA average trades at $100 but undergoes a two-for-one split, reducing its stock price to $50. If our divisor remains unchanged, the calculation for the average would give us 95 ($950 ÷ 10).

Because indexes like the Dow hold companies from a wide range of economic sectors, investors can gain a quick understanding of how the market is performing and whether a particular section of the economy is weakening. The Dow Jones Industrial Average is a stock market index composed of 30 of the largest companies in the United States. Among the companies in the index are 3M, Chevron, Home Depot, IBM, Salesforce, and Visa. The DJIA is considered a bellwether of the stock market and the U.S. economy as a whole.

How the Dow Is Calculated

Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. 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. However, you cannot invest directly in the Dow Jones Industrial Average because it is just an index. 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.

The focus was on the growth stocks of the time, mainly transportation companies. This means that the first Dow Jones Index included nine railroad stocks, a steamship line, and a communications company. The Dow is an average of the price of a selected group of stocks, also known as an index.

Calculation on Day 3

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The table below alphabetically lists the companies included in the DJIA as of June 2022. Although the Dow Jones Industrial Average rarely changes, there are occasional additions and deletions. These changes often come in batches and always keep the total membership at 30 companies. Dow Jones & Company is the firm founded by Charles Dow, Edward Jones, and Charles Bergstresser in 1882, not the people themselves. Charles Dow and Edward Jones ran the company themselves in the early years and built a reputation for integrity.

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As the economy changes over time, so does the composition of the index. A component of the Dow may be dropped when a company becomes less relevant to current trends of the economy, to be replaced by a new name that better reflects the shift. For instance, a company may be removed from the index when its market capitalization drops because of financial distress. The DJIA is the second-oldest U.S. market index after the Dow Jones Transportation Average. The DJIA was designed to serve as a proxy for the health of the broader U.S. economy. Often referred to simply as the Dow, it is one of the most-watched stock market indexes in the world.

Its publications included MarketWatch, Barron’s, and, of course, The Wall Street Journal. What is more, these financial news outlets maintained considerable b2margin independence from News Corp. Companies in the DJIA are also chosen by a committee and are balanced to try to represent the state of the overall economy.

The selected companies are from all major U.S. sectors, except utilities and transportation. Investors may own a handful of stocks within their investment portfolio in which they track each stock’s individual performance. However, the performance of a small portfolio is not indicative of the overall market. Investors also need information about market sentiment, which is where a stock index can be helpful.

To compensate for the effects of the split, we have to adjust the divisor downward to 9.5. This way, the index remains at 100 ($950 ÷ 9.5) and more accurately reflects the value of the stock in the average. If you are interested in finding the current Dow divisor, you can find it on the website of the Dow Jones Indexes and the Chicago Board of Trade.

Another reflects the fact that today, the stock market is much more geographically dispersed and fragmented by company size and industry. Over the years, companies in the index have been changed to ensure the index stays current in its measure of the U.S. economy. In fact, none of the initial companies included in the average remain. Collectively, these market indexes are referred to as the Security Market Indicator Series (SMIS). They provide a basic signal of how specific markets perform during the day.