Every resident of the country has heard and read the phrase “Dow Jones Index”: in the television news of the RBK channel, on the newspaper page of Kommersant, in melodramatic films about the hard life of a foreign broker; politicians like to put in an outlandish financial term.
Companies with the aim of developing the business issue securities in the form of shares and bonds with the prospect of interest income. In this way, free funds of citizens and organizations are attracted. Those who want to invest profitably and sell profitably are brought together by the stock exchange. For free orientation in the financial instruments offered by the issuers of securities, and the time of the conclusion of the purchase-sale transaction, special indicators are used. What is the Dow Jones Index in simple terms? A kind of compass in the turbulent sea of \u200b\u200bthe economy.
We will understand in the article whether the exchange rate affects the life of an ordinary person.
Why do we need
Every participant in the financial market wants to insure risks and minimize losses. When thinking about buying and selling market assets, a trader is looking for support and confirmation of his own thoughts and plans. What does the Dow Jones Index show? An oil painting - how risky it is to enter certain American securities.
A fair number of indicators of economic health have been developed in the stock universe to help capital investors and speculators:
- Dou Jones (Dow Jones) - the pioneer of forecasting tools;
- NASDAQ Composite (Nasdak Composite) - operates with indicators of high-tech companies;
- S & P500 (C-Pi500) - focuses on the characteristics of 0.5 thousand large American organizations and institutions.
Species diversity
The Dow Jones is not the only barometer of the American and global economy. This is usually called one of five varieties - the industrial, most ancient original version.
It is generally accepted that the growth of the valuation coefficient correlates with the movement of the dollar value. Both values \u200b\u200brise and fall in parallel. But not to such an extent that it coincides 100% on the graph. Many factors affect the price.
In the exchange environment, the designation of the concept is adopted by the first letters of the DJI word form. The last letters reflect the specialization:
- DJIA. The parameter is targeted at 30 industrial conglomerates. The author compiled an indicator based on information about large, significant for the economy of the North American states, enterprises. Rotation of participants is extremely rare here. The last time this happened was in 2015.
- DJTA. Transport averidge. The list of players includes 20 representatives of vehicles, aviation and railways.
- DJUA. Filled with securities of 5 utility companies for gas supply and electricity supply.
- DJCA. A combined deflator of 65 names of companies included in the other three lists - industrial, transport and utilities.
- DJIAYW. Indicator of 30 persons, calculated on the basis of dividend yield.
Stock traders prefer to forecast the movement of the US stock market based on the combined or industrial Dow Jones index. The graphical display of information about the change in the value of the indicator contains peaks and troughs. Small ups and downs can be distanced. It is useful to monitor the trend and speed of price changes.
Regional landmarks
The Dow Jones Index's interest is not limited to national companies. The economies of countries interact and influence each other. Therefore, the rating company calculates the meters of the Dow Jones Titans family:
- DJGT50 - "world" indicator;
- DJTT20 - valuation of Turkish shares;
- DJIT30 - Italy stock criterion;
- DJSKT30 - a benchmark for South Korean funds;
- DJAT50 - the best of the African continent;
- DJSPT15 - Pakistan.
The listed meters broadcast the change in the shares of the largest companies in the respective regions.
Buy and sell
The DJIA asset is traded on exchanges on weekdays from Monday to Friday. There are four ways to buy.
The first method is available to a trader who has access to Buy a little of all the shares from the list. But this canal occupation is to follow the evolution of thirty papers, track the composition adjustment in order to carry out the replacement in time. Although, of course, the list of participants rarely changes. If you suddenly need money or have a desire to transfer to assets with increased profitability, you will have to spend a significant amount of time selling. One plus - the issuers of securities from the list pay dividends. In the amount of "the cat cried", but they pay regularly.
The other three: buying a futures on an asset, a contract for difference or an ETF share of a fund - an investor in the list of shares - are very expensive operations and are available to professional market participants.
Calculation method
The list of issuers is heterogeneous. The epithet "industrial" is inherited. Now the list includes not only industrial conglomerates, but also representatives of the financial sector and the insurance business, high-tech technologies and the entertainment industry.
DJI's starting price was 40.94. Until 1928, the indicator was calculated as the arithmetic mean. The sum of the current prices included in the asset register was divided by the number of issuers: 12, 20 or 30.
The market life has made adjustments to the methodology. The fact is that sometimes issuers split up shares, disappeared from the list and were replaced by others, and paid dividends. Therefore, the mathematical model has changed, the concept of "constant Dow divisor" appeared.
Let's consider an optimistic example - the calculation of the Dow Jones index based on 5 virtual companies. Suppose the closing of the trading session yesterday took place at the following levels:
- One - 50;
- Two - 62;
- Three - 80;
- Four - 44;
- Five - 34.
Then DJIA took the value 270/5 \u003d 54.
Today, issuers of the most expensive share have decided to split by 5. Three shares have become a nominal value of 16. But they are popular with investors, and their closing price was 20. The rest of the shares did not change their value per day.
The sum of the shares is 270-80 + 16 \u003d 206.
The new DJI value is 206/5 \u003d 41.2.
That is, the parameter fell, although in fact the prices for securities did not fall, but rose by one. Hence, the formula is subject to revision.
(50+62+16+44+34)/54=3,81.
This is the new constant divisor. Now let's calculate the index taking into account the closing price for today:
(50+62+20+44+34)/3,81=210/3,81=55.
Here is the true value after crushing one of the securities. The upward trend is confirmed.
With the development of computer technology, manual calculations are not performed. This example only illustrates the calculation method.
Advantages
An old-timer of the stock exchange world. But to take advantage of the accumulated experience, you need to spend time studying the behavior of the asset. Only persistent brainstorming can help you apply the parameter to your own budget.
The stock market folks apply the Dow Jones Industrial Average as follows:
- if the trend of the DJIA and the selected stock are showing growth, then, most likely, the upward movement will continue;
- if the measure of economic well-being rises, and the security shows a fall, then the decline in the share price is likely to continue.
The clauses “most likely” and “most likely” in the text are not accidental. The price formation of the issued securities is influenced not only by the actions of 30 companies. Other events are taking place that disturb the economic and financial world. Here are the factors that influence the Dow Jones index:
- Military conflicts.
- Terrorist antics.
- Political unrest in the form of elections, re-elections, strikes and "standing".
- Riot of nature - floods, eruptions, typhoons and drifts.
disadvantages
Does not include the underlying amounts of incoming securities. It is necessary to control the change in the price of assets simultaneously with the value of the market weather indicator.
The calculation method ignores the capitalization of the issuer.
America's economy has more than 30 companies. For an objective picture, the S & P500 index is used, in the exchange slang called "sipi", "barn owl", "husky".
CP - DJ's partner
The American stock market icon is good for the big blue-chip game. But the American economy is not only about thirty successful businesses and institutions.
The full-fledged picture is reflected by the S & P500, or in the exchange slang SIP500. As the name suggests, the indicator takes into account half a thousand securities of successful US companies.
It is imprudent to make a forecast based on one Dow Jones index.
What affects
The amount of emissions does not affect the DJI value.
The indicator, calculated at average prices, shows where the stock market is heading.
If a person has invested in and in the evening sees a message that the Dow Jones index has grown by 150 points, then for joy it is necessary to check what caused the growth. It may happen that only one security has grown significantly in price, while the rest of the thirty fell quietly.
The Dow Jones Index in the event of a collapse is like a snake devouring itself. Of course, no asset is traded without adjustment. Each exchange player sets the percentage of price drawdown as a risk parameter for himself. But there are deep corrections that lead the investor into a stupor. A chain reaction begins - the index falls, people in a panic get rid of assets, sell at current prices. By the close, the share price decreased by ten percent, respectively, the parameter decreased even further. The use of the word "panic" is justified, since most investors do not even try to understand the reasons for the sudden and sharp drop in the Dow Jones index.
This happened in the first quarter of 2018. In ten days from January 29 to February 9, someone went bankrupt by 10%. Considering that amounts in index trading are traded with six zeros, this is a sensitive loss.
Statistics say that during the DJIA decline, the country is swept by a wave of philistine economy, unemployment and industrial apathy.
Dollar and Dow
The indicator is of interest to owners of a complete collection of portraits of American presidents. Russian people are in demand for information about the innovations of the Ministry of Finance and the Central Bank in relation to the ruble.
And yet, how does the Dow Jones Index affect the dollar? The database on the price of North American money in relation to the leading world currencies and on the value of the index gives an interesting summary - the DJIA price and the dollar / euro exchange rate move in parallel or, in technical terms, are correlated.
In theory, the picture looks like this: the dollar grows - the index grows. Falling "green" - collapsing and the indicator of American prosperity. Consider the table of information at the close of the trading session.
| Price $ in Euro | DJIA price, rub. | Price $, rub. |
|
The retrospective of the value of the indicator under consideration on the monthly chart looks interesting. The starting point is 1921, yellow graph. The end of the period is 1940. The index value line from 2001 to 2020 (forecast) is drawn in green. Statistics noted that after the 40th year, the indicator fell into the abyss.
Indicator biography
The calculation of the Dow Jones index for stock manipulations was first made by the financial market guru from the American edition of The Wall Street Journal. One hundred twenty years ago, the editor of a business magazine with friends invented a mathematical apparatus for predicting the industrial future based on the past and present value of issuers' securities. Now the international rating agency "Standard & Poor" is engaged in the calculation.
The history of the Dow Jones Index shows that the initial stock of 12 issuers included nine American Railways. That was justified: the tracks were just being built, the spaces were being developed, the number of consumers of freight and passenger transportation services was growing. The transport business went uphill.
The coefficient has changed. For 90 years, the economic characteristics of thirty companies have been used for the calculation.
By the way, Russian investors and speculators have access to the following issuers included in the Dow Jones Index on the St. Petersburg stock exchange:
- apple electronics icon;
- barbers favorite "Procter & Gamble";
- mummies' favorite Johnson & Johnson;
- financial services provider JPMorgan Chase Bank.
Extract
The impact of the indices is based on the psychology “everyone ran - and Vasily Alibabaevich ran”.
Once deciding to link fate with the broker brotherhood, one must remember that the responsibility for the personal decisions made is borne not by the broker, not by the political and economic situation, but directly by the investor.
And in everyday life, whether the Dow Jones index falls or rises, an ordinary Russian needs to plant the sprouts of his own well-being - plant tomato seeds on seedlings and check the safety of the potato fund.
There is a stock exchange saying: "America sneezes, and the whole world gets cold." But how to understand what exactly is happening with the largest economy on the planet, which is closely monitored by almost all traders in the world?
Stock indices are indicators of the "health" of economic processes. As for the United States, these are the S & P500 (tracks the dynamics of the 500 largest companies), NASDAQ Composite (an index of high-tech companies) and Dow Jones - the oldest and most famous of all indices, a barometer of American development. Even people unfamiliar with the stock exchange world have at least heard something about this index, and traders are familiar with it firsthand. In this article, we will tell in simple words what the Dow Jones Index is, what it affects, what it is measured in and what it depends on.
History of the Dow Jones
The Dow Jones Index, or rather the Dow Jones Industrial Average, was developed by Charles Dow, the founder of The Wall Street Journal and the progenitor of the Dow theory. The Dow Jones index dates back to 1884, and initially it was not published, but was used for "private use", and it included 11 stocks (9 railroad and 2 industrial).
Charles Dow believed that the index should confirm the dynamics of the stock. That is, the Dow Jones index shows whether the stock will continue to rise in the future or not. If the stock is growing and the index is too, the stock is likely to continue growing. If the stock rises, and the index began to decline, it is more likely to decline in the future. The "public" version of the index appeared on 05/26/1896 and was already called industrial (at that time the main capital-intensive companies were industrial). The index included shares of 12 companies in its basket, and was calculated as the arithmetic average of the prices of these shares. Its first value is 40.94 p.
Dow Jones Index Family
Today, the Dow Jones index, or rather, the Dow Jones family of indices, is calculated by the Standard and Poor’s rating agency (the modern name after the rebranding of S&P Global). This organization is responsible for assigning long-term and short-term ratings to countries, issuers and individual debt securities in 26 countries, as well as providing investors with various market research. The Dow Jones family indices calculate not only the dynamics of stocks, but also, for example, Dow Jones Real Estate. However, traditionally, when we refer to the Dow Jones indices, we are talking about the stock market.
The Dow Jones family of stock indices includes:
Dow Jones Industrial Average - the main representative of the family (30 shares)
... Dow Jones Industrial Average Yield Weighted - similar index, weighted by dividend yield,
... Dow Jones Transportation Average - an index of transport companies (20 shares)
... Dow Jones Utility Average - Utility Index (15 shares)
... The Dow Jones Composite Average is an index that unites this family. Includes industrial, transport and utility indices - 65 shares.
In addition to American companies and tracking their dynamics, Dow Jones also tracks global trends using the Dow Jones Titans family indices: Dow Jones Global Titans 50 (the main "world" index), Dow Jones Turkey Titans 20, Dow Jones Italy Titans 30, Dow Jones South Korea Titans 30, Dow Jones Africa Titans 50 and Dow Jones Safe Pakistan Titans 15. Each of them tracks the dynamics of the number of shares of the largest companies in their respective regions indicated in the name.
Let's talk in more detail about the most famous and tracked index - the Dow Jones Industrial Average. This index is calculated in a Price Weighted manner, and not only in US dollars, but also in EUR, CAD and JPY. The index calculation base includes 30 shares of the largest companies (the S & P500, for example, includes 505 shares of 500 companies). And the name "Industrial Average" is rather a tribute to history, since the index contains several sectors with weights at once.
The total capitalization of the companies represented in the index is $ 5,695,582.30 million. The weight of the main heavyweight in the index is 5.4%, and the TOP-10 is 44.4%. As for the average fundamental indicators of companies from the calculation base, they are as follows: P / E - 19.75, P / B - 3.34, dividend yield - 2.49%, P / S - 1.95, P / Cash flow - 11.53.
For those wishing to get the index return on the NYSE, the ETF SPDR Dow Jones Industrial Average ETF Trust (ticker DIA) is traded, the volume of transactions for which on average is about 5 million (the price is about $ 200, the number in the lot is 5). The Dow Jones Industrial Average also trades CME futures contracts, the most liquid of which are mini contracts (E-mini). But in terms of turnover, the E-mini S & P500 futures firmly holds the palm - 1.5 million versus 138 thousand for the mini Dow Jones.
Figure: 2. Volumes of transactions on the E-mini Dow Jones Industrial Average on CME
As for the global counterpart of the Dow family - the Dow Jones Global Titans index - Russia occupies 16th place in it - 0.7% of the total weight with $ 58,532.78 million in terms of capitalization of incoming companies. Our country is on this list right after South Korea, which has a similar weight, but at the same time capitalization of $ 238.843.19 million. At this index on the NYSE, the SPDR Global Dow ETF (ticker DGT) is traded, but its turnover is much less and averages about 5 thousand (the price is around $ 70, the amount in the lot is 200).
Figure: 3. Country composition of the Dow Jones Global Titans index
Conclusion
Despite its rich history, the Dow Jones is somewhat less popular with traders than other key stock indices. However, you need to understand what the Dow Jones index means, as well as track it - it can give more sensitive signals (due to the large value of 20 thousand points versus 2 thousand for SnP500).
In this article, we briefly explained what the Dow Jones index figure means. Do you want more information on this topic? Register on the Otkritie Broker portal - we will tell you how to work correctly with indices and make money using their signals!
The Dow Jones Index, today the oldest index for determining stock market activity.
The advent of the stock index has revolutionized stock exchange activity.
It became the starting point in the emergence of analytical calculations and reviews in predicting the direction of price movement for shares of companies in the industrial sector of the economy.
To calculate the Dow Jones index, information was initially taken on 12 companies that showed stability and growth. The first list included 2 steel companies and 10 railway companies.
At the turn of the 19th and 20th centuries, industrialization took place in the United States at a rapid pace.
The Dow Jones Index was created by Edward Jones, editor of The Wall Street Journal, and Charles Dow, of Dow Jones & Company. Then, to calculate the index, we took the arithmetic mean of the prices of shares of 12 industrial companies.
Gradually, with the growth of the market, the number of companies whose shares take part in the calculation of the Dow Jones index increased. Today their number is 30. This list is not permanent. Periodically, it rotates in order to fully reflect the real state of affairs.
Index composition and value
Dow Jones Industrial Average (The Dow Jones Industrial Average - DJIA), began to display the direction of movement in which the stock market moves. Based on data for 30 companies from the index list.
Today, most of the companies on the list are not from the industrial sector. Therefore, the word industrial in the title is most likely a tribute to history.
The current list of 30 companies looks like this:
The publication of the Dow Jones has revolutionized the securities trading market. It helps traders on the stock exchange to predict the price movement of stocks of companies.
Thanks to Dow Jones, you can see the indicators of the current activity of the US business community. Their reaction to various events in economics and politics.
Dynamics of the Dow Jones index
The stock market is constantly striving towards development. Giving the opportunity to profitably invest, making a profit. According to the theory developed by Charles Dow, many different factors affect stock prices.
From the weather on the Pacific coast, to crop forecast data, or information on the expected inflation rate in a neighboring country.
Published by the Dow Jones Index, it helps to obtain information designed to calculate the zero point of the beginning of the analysis. It allows you to understand in which direction the market is much more likely to go.
The dynamics of price movement goes in one direction.
This process is not chaotic, but has a certain direction, it is called a trend.
There are three different trends:
- When there is growth, it is bullish trend.
- When moving down, bearish trend.
- When the price is the same lateral trend.
To anticipate the future, it is necessary to analyze the past. Studying different configurations of price formation on the index movement chart, one can find certain dependencies. They are present on various trading floors in different time frames.
The main reason for such actions depends on the psychological characteristics of the person.
To calculate the forecast, prices are based on different indicators. This is data from previous trades, among them the value of assets. And the second is the estimated number of transactions for a certain period of time.
Disadvantages of the index
Financial analysts consider the method of its calculation as the main drawback of the Dow Jones index. The calculation is carried out by adding up the value of the securities, and then the resulting number is divided by the correction factor.
With this miscalculation methodology, companies with smaller capitalization, but with higher prices per share, can influence the index more intensively. Therefore, price fluctuations for low-cost stocks can be offset by more expensive ones.
The use of 30 companies for the calculation of the index does not give a complete picture of the market movement, despite the fact that the total value of their shares becomes approximately 20% of the market volume.
For more accurate results, it is better to choose the S&P 500 index, which includes information from 500 companies.
Index application
With certain shortcomings, the Dow Jones index is today considered the most important indicator of the world economy. In addition to analytical value, it directly affects the change in the dollar exchange rate and the cost of investment packages.
For this reason, this information is of great value for every investor, in whatever market he is working. Its value directly affects the rate of the American dollar, depending on it, prices for commodity futures contracts change, which make it possible to make good money on quotes.
There is a dependence, when the Dow Jones index rises, the dollar rises with it. Accordingly, by selling your products on the US market, you will receive more in your local currency.
And if the index falls, everything will be reversed. With this information, investors make decisions to sell or buy.
Index calculation
The first calculations of the Dow Jones index were easy enough. At that time, there were still no calculators and computers. All calculations were done on paper in pencil.
It was necessary to sum up the price of the companies' shares and divide them by 12, which was equal to the number of companies. Now, a century later, the number of companies is now 30.
The calculation uses other, improved formulas.
Companies whose shares participate in the determination of the Dow Jones Index are listed on the New York Stock Exchange. Today, the Dow Jones is calculated by summing stock prices. And dividing the calculated value by a constant divisor.
By applying a constant divisor, we can correct for the amount of change in the nominal value of the stock. This is necessary in the case when the processes of consolidation, or split have occurred.
The essence of the Dow Jones index
This index makes it possible to track the trend of changes in the prices of shares of the largest US companies. It serves as a barometer of US investment activity.
Index growth means that foreign investors are showing a keen interest in US stocks. They imply an increase in the value of securities, and an increase in dividends. This makes it possible to predict an increase in the profits of these companies, as a consequence of this growth of the American economy.
Analysis is also carried out in case of falling index... Since the companies whose shares are included in the Dow Jones Index operate in many countries of the world, this indicator can be used to assess business activity in the world.
Welcome to the Financial Genius! Today we will talk about the famous dow Jones index... I will tell you about what the Dow Jones Index is, what it consists of, how it is calculated, what it means, and in general, what it is for and how it can be used. This information will be useful not only for those who are engaged, but also for any person for general development and the ability to competently understand and interpret world economic news.
What is the Dow Jones Index?
So, the Dow Jones index is one of the largest, which is calculated in the United States and reflects the state of American industry.
The full name of this indicator is the Dow Jones Industrial Average. This is the first stock index invented in the United States in the second half of the 19th century by Charles Doe, the founder of Dow Jones & Company, together with Edward Jones, the editor of the largest American publication Wall Street Journal (by the way, this newspaper is still revising the companies included in the calculation of the indicator) ... For the first time, the Dow Jones index was officially published in 1896, and before that, since 1884, its first version already existed, 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 20th century, the number of companies in the index was first increased to 16, and then to 30, which remains today. The companies in the index were periodically rotated - new companies replaced old ones.
The Dow Jones Today: Composition and Significance.
Currently, the Dow Jones index includes the value of common shares of 30 largest US companies in various industries. Among them there are industrial corporations, oil and gas companies, enterprises of the chemical and pharmaceutical industries, the food industry, telecommunications enterprises, a network of public catering restaurants, an entertainment industry enterprise, a financial, credit, insurance company, a payment system, etc.
The most famous companies whose shares are included in the Dow Jones index are American Express, Boeing, Coca-Cola, Johnson & Johnson, McDonald’s, Microsoft, Nike, Procter & Gamble, Visa, Walt Disney.
Almost all of these companies are listed on the NYSE and three on the Nasdaq. At the same time, the total capitalization of companies included in the Dow Jones index is about 15% of the capital of all companies listed on the stock exchange.
The last Dow Jones composition approval to date was made on September 20, 2013.
If initially the Dow Jones index was calculated as a simple arithmetic average of the prices of all stocks included in the indicator, now the calculations have become a little more complicated, and this is already a scalable average, which makes it possible to take into account changes in the internal structure of the securities taken into account. That is, the current Dow Jones index shows the average value of shares in those 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 allows the Dow Jones index to be 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 US companies changes. 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 rises, this indicates an increase in business activity, an improvement in the investment climate, and an increase in demand for shares of American companies from investors. Investors buy stocks predicting that they will rise in value and generate dividend income. Accordingly, if the Dow Jones index is growing, it means that the growth of company profits is predicted, and, to some extent, the growth of the American and world economies. If the Dow Jones falls, the opposite is true.
Dow Jones Index: Chart and Dynamics.
Now I will tell you a little about the dynamics of the Dow Jones index over the entire period of its existence, I will focus on the most significant points. This is how the Dow Jones Index chart looks like over the past decades, starting in 1985:
In general, in the long term, since the beginning of its existence, the Dow Jones chart has been growing steadily. The very first published value of this indicator was only 40.94, and today it exceeds 18000 (!). Thus, for more than 100 years of its existence, the Dow Jones index has grown by about 440 times (!), In fact, this figure can be roughly considered an increase in the capitalization of the American economy.
In 1966, the indicator for the first time broke through the psychological mark of 1000, its especially rapid growth began in the 80s, and even more strongly in the 90s of the last century. So, in 1995, the 5,000 mark was crossed, and already in 1999 - 10,000.
The largest medium-term drop in the Dow Jones was observed in 2008-2009 when it began. Then, after the previously reached highs above 14,000, it fell below the 7,000 mark - more than 2 times, but after that it recovered and continued its growth, which is observed to this day.
The largest daily drop in the Dow Jones index was recorded in the so-called. “Black Monday” October 19, 1987 - on this day, the figure fell by 22.6%. After the terrorist attack in the United States on September 11, 2001, the Dow Jones fell 7.1%.
Dow Jones Index Disadvantages.
Despite the fact that the Dow Jones is still considered the main indicator of the global economy, it has its drawbacks. Chief among them is the relatively small number of companies whose securities are included in the calculation of the indicator - there are only 30 of them. For this reason, in order to make more accurate conclusions, investors and analysts often consider the Dow Jones index in combination with the S&P 500 index, which includes shares of 500 US companies.
In addition, despite the changes in the methods of calculating the indicator, many consider it imperfect. For example, because when calculating the Dow Jones index, only the current price of shares is taken into account, without comparison with its original value or some basic value at a certain date, as is the case when calculating some other indices. Also, the value of the index is more influenced by the most expensive securities included in the index, and not all equally.
Application of the Dow Jones index.
The Dow Jones Index is the indicator that is always closely watched by investors around the world, even those who have nothing to do with the US stock market. The fact is that changes in this index have an indirect effect on the dollar rate, and the dollar rate, in turn, affects everything, any investment assets.
In addition, the Dow Jones index itself also acts as an exchange asset - traders all over the world buy and sell it through futures contracts, earning on price changes.
Now you have a basic understanding of what the Dow Jones index is, how it is calculated and what it shows, which means that you can correctly interpret economic and financial news, which will mention the rise or fall of this indicator.
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He falls and rises, breaks records and experiences Black Mondays. Its name is well-known, but what it is is still not clear. Let's figure it out. Let's start from afar.
What is a stock exchange?
This is the market where brokers and traders buy and sell securities: stocks, bonds, futures, options, state treasury obligations, prices for which are determined by supply and demand. This ensures the movement of capital - from one industry to another, from country to country. Each state with a market economy has its own exchange, or even more than one. NYSE ( New York Stock Exchange) - the largest. The second in the world ranking in terms of capitalization - NASDAQ - is also American. She specializes in high-tech stocks.
The Dow Jones Index is traded on these two exchanges (DJ, Dow Jones Industrial Average, DJIA, Dow Jones, Dow, Dow 30) - an index of the 30 largest companies in the United States.
Who came up with the index?
The oldest American stock index and the world's most popular stock index was created in 1884 by The Wall Street Journal editor Charles Henry Dow and his business partner statistician Edward Davis Jones to objectively reflect the financial health of the market in a business newspaper. ...
Nine of the 10 large companies whose quotes were initially taken into account by the inventors of the index were railroad. 1880s in America - years of active construction of railways.
How is it calculatedDow Jones?
Over the years, calculating the Dow Jones has become much more complex, taking into account many factors. Now it is calculated as a scalable average of stock prices: that is, the sum is not divided by the number of companies, but by the divisor, which changes every time the shares are combined or split.
The number of companies - 30 - has not changed since 1928, but the list compiled by the editorial staff of The Wall Street Journal changes from time to time. The dropouts are taken by those whose share in the relevant market is growing.
Now the “mighty thirty” looks like this: 3M, Alcoa, American Express, AT&T, Bank of America, Boeing, Caterpillar, Chevron Corporation, Cisco Systems, Coca-Cola, DuPont, ExxonMobil, General Electric, General Motors, Hewlett-Packard, Home Depot, Intel, IBM, Johnson & Johnson, JPMorgan Chase, Kraft Foods, McDonald's, Merck, Microsoft, Pfizer, Procter & Gamble, The Travelers Companies, United Technologies Corporation, Verizon Communications, Wal-Mart, Walt Disney.
The first composition in the current version of the index is represented only by General Electric.
The value of the first index, published at the end of the 19th century, is 40.94 points. The 1,000-point milestone was reached in 1972. In March 1999, the value of 10,000 was conquered.On January 4, 2018, another record was set - 25,000 points.
There were, however, failures: on Black Monday - October 19, 1987 - the index fell by 22.6% and this event affected the entire world economy.
What showsDow Jones?
The Dow Jones is called a barometer of American development and a global indicator.
The growth of the index is associated with an increase in the value of companies from the "index basket" (and, therefore, the entire American economy), the fall records a decline in business activity and a decrease in the capital of the main business players.
The index, which measures market sentiment in the world's largest economy, is being watched especially closely by investors.
What affects the index?
Not everything depends on the state of affairs in 30 key companies in America. The index is influenced by military actions, terrorist attacks, political unrest both in the country and abroad, natural disasters - in a word, everything that can strike a blow on the local or global economy.
How to make money on Dow Jones?
Dow Jones, as a financial instrument, allows investors to increase their profits. Relying on clear signals from the index, it is possible to predict whether the stock will continue to rise or not. If the stock and index are up, the gain is likely to continue. If a stock rallies and the index declines, the stock is likely to decline in the future.
But the index itself is an exchange asset, and traders make good money on it. There are several types of investing in the index. This includes buying shares of companies that make up the index, buying an index futures or ETF shares of a fund investing in the index.