Dow Jones Industrial Average

Dow Jones Industrial Average is a widely followed stock market index in the United States, often considered a benchmark for the overall performance of the New York Stock Exchange (NYSE) and the NASDAQ. The index is maintained by S&P Dow Jones Indices, a division of S&P Global, and is one of the most widely recognized stock market indices in the world, along with the S&P 500 and the NASDAQ-100. The Dow Jones Industrial Average is often referred to as the "Dow" and is calculated based on the stock prices of 30 of the largest and most widely traded companies on the NYSE and NASDAQ, including Apple Inc., Microsoft, Johnson & Johnson, and Procter & Gamble. The index is widely followed by investors, financial analysts, and economists, including Ben Bernanke, Alan Greenspan, and Janet Yellen.

Introduction

The Dow Jones Industrial Average is a price-weighted index, meaning that the companies with the highest stock prices have a greater influence on the index's value, such as 3M, Coca-Cola, and McDonald's. The index is calculated and maintained by S&P Dow Jones Indices, which is a leading provider of stock market indices, including the S&P 500, S&P MidCap 400, and S&P SmallCap 600. The Dow Jones Industrial Average is widely followed by investors and financial analysts at Goldman Sachs, Morgan Stanley, and JPMorgan Chase, and is often used as a benchmark for the performance of mutual funds and exchange-traded funds (ETFs), such as the SPDR S&P 500 ETF Trust and the Vanguard Total Stock Market Index Fund. The index is also closely watched by economists at Harvard University, Stanford University, and the Federal Reserve, including Nouriel Roubini and Robert Shiller.

History

The Dow Jones Industrial Average was first calculated on May 26, 1896, by Charles Dow and Edward Jones, the founders of Dow Jones & Company, which is now a subsidiary of News Corp. The original index consisted of 12 companies, including General Electric, American Tobacco, and U.S. Leather, and was designed to provide a simple and easy-to-follow measure of the overall performance of the US stock market. Over the years, the index has undergone several changes, including the addition of new companies and the removal of others, such as AT&T, Eastman Kodak, and International Paper. The index has also been affected by major events, such as the Wall Street Crash of 1929, the Great Depression, and the 2008 global financial crisis, which was triggered by the collapse of Lehman Brothers and the subsequent bailout of AIG and General Motors.

Composition

The Dow Jones Industrial Average is composed of 30 of the largest and most widely traded companies on the NYSE and NASDAQ, including Visa Inc., UnitedHealth Group, and Walmart. The companies are selected by the S&P Dow Jones Indices committee, which considers factors such as market capitalization, liquidity, and industry representation, as well as the companies' presence in the S&P 500 and the Russell 1000. The index includes companies from a variety of industries, including technology (e.g., Intel, Cisco Systems), healthcare (e.g., Pfizer, Merck & Co.), and consumer goods (e.g., Procter & Gamble, Coca-Cola). The index also includes companies with significant operations in China, such as Apple Inc. and Microsoft, as well as companies with major research and development facilities, such as Johnson & Johnson and 3M.

Calculation

The Dow Jones Industrial Average is calculated as a price-weighted index, meaning that the companies with the highest stock prices have a greater influence on the index's value, such as UnitedHealth Group and Visa Inc.. The index is calculated by summing the stock prices of the 30 component companies and dividing by a divisor, which is adjusted periodically to account for stock splits, dividends, and other corporate actions, such as mergers and acquisitions (e.g., the merger of AOL and Time Warner). The index is calculated in real-time throughout the trading day and is disseminated to investors and financial analysts through a variety of channels, including Bloomberg, Reuters, and CNBC, which is owned by Comcast.

Impact

The Dow Jones Industrial Average has a significant impact on the global economy, as it is widely followed by investors, financial analysts, and economists at IMF, World Bank, and the European Central Bank. The index is often used as a benchmark for the performance of mutual funds and exchange-traded funds (ETFs), and is also used as a indicator of the overall health of the US economy, along with other indicators such as GDP and the unemployment rate, which is tracked by the Bureau of Labor Statistics. The index has also been the subject of significant media coverage, including on CNBC, Bloomberg, and The Wall Street Journal, which is owned by News Corp. The index has also been studied by economists at University of Chicago, MIT, and Stanford University, including Milton Friedman and Joseph Stiglitz.

Criticisms

The Dow Jones Industrial Average has been subject to several criticisms, including its limited scope and its failure to account for the overall performance of the US economy, which is also tracked by the Conference Board and the National Bureau of Economic Research. Some critics, such as Warren Buffett and Peter Lynch, have argued that the index is too narrow and does not accurately reflect the performance of the broader stock market, which includes small-cap and mid-cap stocks, as well as international stocks, such as those listed on the London Stock Exchange and the Tokyo Stock Exchange. Others, such as Nouriel Roubini and Robert Shiller, have argued that the index is too focused on the performance of large-cap stocks and does not account for the performance of smaller companies, such as those listed on the NASDAQ and the NYSE American. Despite these criticisms, the Dow Jones Industrial Average remains one of the most widely followed and widely recognized stock market indices in the world, along with the S&P 500 and the NASDAQ-100, which are also tracked by Fidelity Investments and Vanguard Group. Category:Stock market indices