Dow Jones Index Definition

Answer 1

The New York Stock Exchange is the largest stock exchange in the world by market capitalization. The more than 2,000 companies listed account for more than 13 trillion dollars of capital. When investors look for an indication of market trends, they generally look at one of the many market indexes used to measure market buys and sells. One of the most closely watched market indexes is the Dow Jones Index, established in 1896. It shows how 30 of the largest publicly-traded U.S. companies have traded during any given session.

What are the Dow components?

The Dow Jones Index includes some of the largest and most well-known companies in many sectors of the U.S. economy. The companies are a mix of historically iconic names, such as Dupont, Proctor & Gamble, Exxon Mobil and General Electric, and newer companies that are more recent corporate successes, such as Wal-Mart, Microsoft, Intel and McDonald's. Occasionally the make-up of the Dow Index changes. Companies are added or dropped as company stock prices and overall economic health decline. In 2008 for instance, Kraft Foods replaced American International Group (AIG), and, in 2009, The Travelers Companies and Cisco Systems replaced General Motors and Citigroup. When companies are replaced, the scale calculations and weighted average equations are adjusted, so the average price remains the same, and the overall Dow level does not flucuate due to the addition or removal of companies.

Many of the companies included in the Dow Jones Index are considered "blue chip" stocks and, thus, good long-term investments. Why the Dow is so widely used as an index

The 30 companies that make up the Dow Jones Index tend to trade heavily during an average trading session. That heavy trading, along with the combined volume of shares issued by these 30 companies, provides a good benchmark or indicator about what the rest of the market is doing. The idea behind the Dow index is that as the publicly-traded stocks of these powerful companies go, so goes the rest of the market. So when the news reports that the Dow Index dropped 300 points, it means that many investors sold their investments and took some of their money out of the Stock Market.

The Dow Jones Index is based on 30 of the most stable publicly-traded companies in the market. Therefore, when the stocks of these companies fluctuate up or down, it is a good indication of how the rest of the stock market is performing. The Dow Jones Index is one of the most historically reliable indexes to indicate the health and volatility of market investments.