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What Is the Dow Jones Industrial Average Index (DJIA)?

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by Beatrice Mastropietro · 4 min read
What Is the Dow Jones Industrial Average Index (DJIA)?
Photo: Depositphotos

The DJIA is one of the oldest and the most famous bond index. It was initially published in 1896 and since then, a significant quantity of important information has continued to be provided about inventories from various firms. This guide explores all about this robust index.

The Dow Jones Industrial Average Index (DJIA) is one of many indexes used as a gauge for how well an entire market performs at any given time. The index can be helpful because it shows where and how much specific markets have fluctuated in value for days, weeks, or months. It also allows investors to track their investment performance and compare themselves against others with different portfolios.

History of DJIA

The DJIA is one of the oldest and most well-known stock market indexes in America. Charles Dow, the co-founder of the Wall Street Journal, created the index back in 1884. Charles Dow composed his first stock average of nine railroads and two industrial companies that appeared in the Customer’s Afternoon Letter, a daily two-page financial news bulletin that preceded The Wall Street Journal. By 1900, the index was renamed Dow Jones Industrial Average and included 30 equities divided into two groups: the industrials (comprising 19 members) and the railroads (11).

DJIA expanded beyond transportation stocks with the addition of General Electric (NYSE: GE) in 1901. It joined as one of 11 industrial sector companies added that year due to perceived growth prospects based on earnings per share multiples at a time, resulting from significant expansion following consolidation/merger wave among USUS manufacturing businesses during the 1890s – 1910s.

Many significant adjustments occurred throughout the 20th century as many former components combined, departed, or were relocated.

Using historical data from the DJIA, you could get a good idea about what factors affect stocks in general. For example, if you saw that oil prices tend to go up when there’s terrible weather somewhere – maybe your portfolio has some exposure to alternative energy research?

DJIA history is a significant indicator of the overall direction of top-level economic activity as measured by leading US industrial corporations whose performance is indicative of changes in business conditions and investment prospects for stock market investors. DJIA value has been included in significant decisions regarding monetary policy that affect global markets, such as Federal Reserve rate decision announcements published in advance so financial professionals can monitor new information before public release.

Understanding the Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA), sometimes called the “Dow,” is a stock market index that shows how 30 large publicly owned companies based in the United States are trading during a standard trading session in the stock market.

The components of DJIA are chosen from leading US companies across different industry groups to reflect their significance within those specific industries and national markets overall.

For a company’s stocks to be added onto or removed from this average, they must meet specific requirements, including management integrity and liquidity, along with shareholder equity over time which helps ensure only established corporations remain included.

Dow Jones Industrial Average Components

The DJIA comprises numerous components that are crucial to the information it provides about how well or poorly the stock market as a whole has performed on any given day.  

As of 2021, the Dow Jones Average Index includes the following companies: Apple Inc (NYSE: AAPL), Salesforce.com Inc (NYSE: CRM), Procter & Gamble (NYSE: PG), The Walt Disney Company (NYSE: DIS), Microsoft Corp (NASDAQ: MSFT), Visa Inc (NYSE: V), The Coca-Cola Company (NYSE: KO), The Goldman Sachs Group, Inc (NYSE: GS), Nike Inc (NYSE: NKE), J.P. Morgan Chase & Co. (NYSE: JPM), The Boeing Company (NYSE: BA), The American Express Company (NYSE: AXP), Intel Corporation (NASDAQ: INTC), Cisco Systems Inc (NASDAQ: CSCO), Honeywell International Inc (NYSE: HON), Verizon Communications Inc (NYSE: VZ), Johnson & Johnson (NYSE: JNJ), The Travelers Companies (NYSE: TRV), Walmart Inc (NYSE: WMT), McDonald’s Corporation (NYSE: MCD), Merck & Co., Inc (NYSE: MRK), UnitedHealth Group (NYSE: UNH), IBM (NYSE: IBM), 3M Company (NYSE: MMM), Chevron Corporation (NYSE: CVX), The Home Depot, Inc (NYSE: HD), Amgen Inc (NASDAQ: AMGN), Caterpillar Inc (NYSE: CAT), Walgreens Boots Alliance (NASDAQ: WBA).

DJIA vs the S&P 500 and the Nasdaq Composite

While the basic mission of DJIA, S&P 500, and the Nasdaq Composite is similar, the way they go about the task is very different.

Their selection methodology varies. The Dow tracks the value of 30 large companies which tend to be blue-chip firms that are household names. The S&P 500 tends to be broader, hoping to have a bigger representation of companies from various sectors and industry groups. And the Nasdaq composite includes only stocks that are trading on the Nasdaq market.

Conclusion

The DJIA has been a historical benchmark for investors to keep in mind when evaluating their stock performance compared to other top companies on the market. However, there are many different indices these days, and each investor needs to conduct thorough research before placing any investments with a financial adviser.

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FAQ

What is Dow Jones Industrial Average Index?

A stock market index depicts how 30 large publicly owned firms in the United States are trading throughout a typical trading session.

What is the purpose of the Dow Jones Industrial Average?

The Dow Jones Industrial Average uses a price-weighted index, which means that equities with a higher share value have a more significant influence on the index.

What is the difference between Dow Jones and S&P 500?

The DJIA focuses on 30 large American firms, while the S& P 500 tracks 500 large-cap US stocks.

How is the value of the Dow Jones Industrial Average calculated?

The current prices of the 30 stocks that make up the index are combined and then divided by the Dow divisor, adjusted regularly.

How does DJIA work?

The Dow Jones Industrial Average is a price-weighted index, which implies that those stocks with higher share prices are weighted more heavily in the index.

What are the companies included in DJIA?

The Dow Jones Industrial Average is a stock market index calculated and published by Dow Jones & Company, which currently has 30 large-cap companies from across the world.

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