The Dow Jones Industrial Average , or just Dow , is a stock market index that shows how 30 a large publicly owned company based in the United States has been trading during a standard trading session on the stock market. Dow's value does not mean arithmetic is weightless and does not represent the market capitalization of its component companies, but rather the price of one share for each component company. The amount is corrected by a factor that changes every time one of the component shares has a stock split or stock dividend, resulting in a consistent value for the index.
This is the second-oldest US market index after the Dow Jones Transportation Average, created by the Wall Street Journal editor and Dow Jones & amp; Company co-founder Charles Dow. Currently owned by Dow Jones S & amp; P, which is majority owned by S & amp; P Global, this is the most famous of the Dow Average, the first (non-industrial) was originally published on February 16, 1885. The average is named after Dow and one of his business associates, statistician Edward Jones. The industry average was first calculated on May 26, 1896.
The Industrial section of the name is largely historical, as many of the 30 modern components have little or nothing to do with traditional heavy industries. Since the current divisor is less than one, the index value is greater than the sum of the component price. Although the Dow is compiled to measure the performance of the industrial sector in the American economy, the performance of the index continues to be influenced by not only corporate and economic reports but also by domestic and foreign political events such as war and terrorism, as well as by natural disasters that have the potential to cause economic losses.
Video Dow Jones Industrial Average
Components
Since closing on September 1, 2017, the Dow Jones Industrial Average has consisted of the following 30 major companies:
Maps Dow Jones Industrial Average
Former components
The DJIA components have been changed 51 times since its inception on May 26, 1896. General Electric has had the longest continuous presence on the index, beginning in 1907. More recent changes to the index include the following:
- On April 8, 2004, American International Group Incorporated, Pfizer Incorporated, and Verizon Communications Incorporated superseded AT & amp; T Corporation, Eastman Kodak Company, and International Paper Company.
- On February 19, 2008, Chevron and Bank of America replaced Altria Group and Honeywell. Chevron was previously a Dow component from July 18, 1930, to November 1, 1999. During Chevron's absence, the split-adjusted price per share rose from $ 44 to $ 85, while oil prices rose from $ 24 to $ 100.
- On September 22, 2008, Kraft Foods Inc. replaced American International Group (AIG) in the index.
- On June 8, 2009, General Motors Corporation and Citigroup were replaced by The Travelers Companies and Cisco Systems, the latter being the third company traded on NASDAQ to become part of the Dow.
- On September 24, 2012, UnitedHealth Group replaces Kraft Foods Inc. after Kraft is divided into Mondel? z International and Kraft Foods Group.
- On September 20, 2013, Goldman Sachs, Nike, and Visa replaced Alcoa, Bank of America and Hewlett-Packard. Visa replaces Hewlett-Packard for being split into HP Inc. and Hewlett Packard Enterprise
- On March 19, 2015, Apple replaced AT & amp; T, which has been a DJIA component since November 1916. Apple became the fourth company traded on NASDAQ to become part of the Dow.
- As of Sept 1, 2017, DowDuPont replaces DuPont. DowDuPont is formed by the incorporation of Dow Chemical Company with DuPont.
History
Precursors
In 1884, Charles Dow composed the first stock average, containing nine railroads and two industrial companies that appeared in the Customer's Evening Letter, a two-page financial newsletter every day that was the precursor to The Wall Street Journal. i>. On January 2, 1886, the number of shares represented in what is now a Dow Jones Transportation Average fell from 14 to 12, as the Central Pacific Railroad and Central Railroad of New Jersey were removed. Although it consists of the same number of shares, this index contains only one of the twelve indigenous industries that will eventually form the most famous Dow index.
Initial component
Dow calculated its first average pure industrial stock on May 26, 1896, creating what is now known as the Dow Jones Industrial Average. Of the 12 indigenous industries, only General Electric is currently still part of the index. The other 11 are:
- The American Cotton Oil Company , the predecessor to Bestfoods, is now part of Unilever.
- American Sugar Company , became Domino Sugar in 1900, now Domino Foods, Inc.
- American Tobacco Company , broken up in a 1911 antitrust action.
- The Chicago Gas Company , purchased by Peoples Gas Light in 1897, is now an operating subsidiary of Integrys Energy Group.
- Distilling & amp; Animal Feed Company, now Millennium Chemicals, was previously the LyondellBasell division, the latter of which recently emerged from Chapter 11 bankruptcy.
- Laclede Gas Company , still operating as Spire Inc., was removed from the Dow Jones Industrial Average in 1899.
- National Primary Company , now NL Industries, was removed from the Dow Jones Industrial Average in 1916.
- The North American Company , the company holding the electricity, was damaged by the US Securities and Exchange Commission (SEC) in 1946.
- Tennessee Coal, Iron and Railroad Company in Birmingham, Alabama, purchased by US Steel in 1907; US. Steel was removed from the Dow Jones Industrial Average in 1991.
- US. Leather Company , was dissolved in 1952.
- The United States Rubber Company , changed its name to Uniroyal in 1961, joined the private B.F. Goodrich in 1986, purchased by Michelin in 1990.
Initial years
When first published in the mid 1880s, the index stood at the level of 62.76. It peaked at 78.38 during the summer of 1890, but eventually reached an all-time low of 28.48 in the summer of 1896 during Panic in 1896. Many of the largest Dow's percentage price movements occurred at the beginning of its history, as the new industrial economy born mature. The 1900s would see the Dow stop its momentum as he made it through two financial crises; Panic of 1901 and Panic of 1907. The Dow will remain trapped in a trade range between 53 and 103 points by the end of 1914. The negativity surrounding the San Francisco earthquake of 1906 did little to improve the economic climate.
In the early 1910s, this decade will begin with Panic of 1910-1911 which hampers economic growth for a long period of time. History will take its course on 30 July 1914; as the average stood at 71.42 when the decision was made to close the New York Stock Exchange, and suspend trading over the span of four and a half months. Some historians believe the exchange is closed due to concerns that the market will plunge as a result of panic during the start of World War I. An alternative explanation is that Finance Minister William Gibbs McAdoo closed the exchange to preserve US gold stocks to launch the Federal Reserve System later that year, with gold enough to make the United States equivalent to the gold standard. When the market reopened on 12 December 1914, the index closed at 74.56, up 4.4 percent. This is often reported as a major decline, as it uses subsequent redefinition. Reports of the time say that day is positive. After World War I, the United States will experience another economic downturn, recession after World War I. Dow's performance will remain unchanged from the closing value of the previous decade, adding only 8.26%, from 99.05 points in early 1910, to level 107 , 23 points by the end of 1919.
During the 1920s, especially In 1928, the Dow components were upgraded to 30 stocks near the decade's economic height, dubbed the Roaring Twenties. This period underestimated the effects of the early 1920s recession plus certain international conflicts such as the Polish-Soviet war, the Irish Civil War, the Turkish War of Independence, and the early phases of the Chinese Civil War. The Crash of 1929 and the Next Great Depression over the next few years restore the average to the starting point, almost 90% below its peak. On July 8, 1932, after a day low of 40.56, the Dow will end the session closing at 41.22. The high of 381.17 on September 3, 1929, will not be exceeded until 1954, in an inflation-adjusted figure. However, the bottom of Crash 1929 came just 2½ months later on 13 November 1929, when intra-day was at 195.35 level, closing slightly higher at 198.69. For a decade, the Dow will end up with a healthy profit of 131.7%, from 107.23 points in early 1920, to a level of 248.48 points at the end of 1929, just before Crash of 1929.
Characterized by global instability and the Great Depression, the 1930s competed with several European and Asian outbreaks of war, leading to the disasters of World War II in 1939. Other conflicts over the decade that affected the stock market include the Spanish Civil War 1936-1939, 1935 -1936 Second Italo-Abyssinian War, Soviet-Japanese War Border of 1939 and Second Japan-Japan War of 1937. In addition, the United States faced a painful recession in 1937 and 1938 that temporarily brought the economy. recovery stopped. The largest single-day percentage gain in the index, 15.34%, occurred on March 15, 1933, in the bear market depth of 1930s when the Dow rose 8.26 points to close at 62.10. However, overall throughout the Great Depression, the Dow posted some of its worst performances, for a negative return during most of the 1930s for new and old stock market investors. For a decade, the Dow Jones average fell from 248.48 points at the start of 1930, to a steady 150.24 point level by the end of 1939, losing about 40%.
Postwar years
Post-war reconstruction during the 1940s, along with new optimism about peace and prosperity, led to a 39% spike in the Dow from around 148 to 206 levels. The strength in the Dow occurred despite a brief recession in 1949 and other global conflicts. which began sometime later including the last stage of the Chinese Civil War, the Greek Civil War, the Indo-Pakistani War of 1947 and the 1948 Arab-Israeli War.
During the 1950s, the Korean War, the Algerian War, the Cold War and other political tensions such as the Cuban Revolution, as well as the widespread political and economic changes in Africa during the early stages of the European Decolonization, did not stop the Dow bullish climbing higher. In addition, the US will also pass two milling recessions; one in 1953 and another in 1958. The 200% increase in average from the level of 206 to 616 occurred during the decade.
Dow's bullish behavior began to cease during the 1960s when the US became entangled with foreign political issues such as US military visits including the Bay of Pigs Invasion involving Cuba, the Vietnam War, the Portuguese Colonial War, the US-assisted Colombian civil war with a long counter-guerrilla campaign short, and domestic issues such as the Civil Rights Movement and several influential political killings. For this decade, and despite the mild recession between 1960 and 1961, the average still managed to get 30% of the respectable gain from 616 to 800 levels.
The 1970s marked a period of economic uncertainty and troubled relations between the US and certain Middle Eastern countries. To begin with, the decade begins with the ongoing Recession of 1969-70. Thereafter, the 1970s Energy Crisis occurred which included the 1973-75 recession, the 1973 Oil Crisis and the 1979 energy crisis that began as the beginning of a disastrous economic climate injected with stagflation; a combination of high unemployment and high inflation. However, on November 14, 1972, the average closed above 1,000 marks (1.003.16) for the first time, during a brief relief rally in the midst of a long bear market. Between January 1973 and December 1974, the average lost 48% of its value in what is known as the 1973-1974 Stock Market Crash; with situations exacerbated by events surrounding the Yom Kippur War. The index closed at 577.60, on 4 December 1974. During 1976, the index rose above 1000 several times, and it closed the year at 1.004.75. Although the Vietnam War ended in 1975, a new tension emerged towards Iran around the Iranian Revolution in 1979. Other notable interfaces such as the Lebanese Civil War, Ethiopian Civil War, Indo-Pakistani War of 1971 and Angola's US and Soviet Civil War considered crucial to the balance of global forces, seem to have little effect on financial markets. Performance-wise for this decade, profits remain almost flat, rising less than 5% from around the 800 level to 838.
The 1980s began with the recession of the early 1980s. As early as 1981, it broke out over 1000 several times, but then retreated. The largest one-day percentage drop occurred on Black Monday; October 19, 1987, when the average fell 22.61%. There is no apparent reason given for explaining the accident, but program trading may be a contributing factor. On October 13, 1989, the Dow fell to another fall, the 1989 Mini-Crash that started the collapse of the junk bond market because the Dow posted a loss of almost 7%.
For a decade, the Dow made a 228% increase from 838 levels to 2,753; despite the crash, Silver Thursday, the early 1980s recession, the 1980s oil glut, the asset price bubble of Japan and other political disturbances such as the Soviet war in Afghanistan, the Falklands War, the Iran-Iraq War, the Second Civil War in Sudan and the Intifada First in the Middle East. The index has only two negative years, namely in 1981 and 1984.
Boom Dot-com
The 1990s brought rapid progress in technology along with the introduction of the dot-com era. To begin, the market competed with the oil price shocks of 1990 coupled with the effects of the 1990s recession and the brief European situation surrounding Black Wednesday. Certain influential foreign conflicts such as the 1991 Soviet coup attempt that took place as part of the early stages of the Soviet Dissolution and the Fall of Communism; The First and Second Chechen Wars, the Persian Gulf War and the Yugoslav War failed to dampen the economic enthusiasm surrounding the ongoing Information Age and "irrational exuberance" (the phrase coined by Alan Greenspan) of Boom Internet. Even the incidence of the Rwandan Genocide and the Second Congo War, referred to as the "World War of Africa" ​​ involving 8 separate African countries that together between them killed more than 5 million people, did not seem to have a real negative financial impact on the Dow as well. Between late 1992 and early 1993, the Dow lumbered through the 3,000 level making only modest gains when the Biotechnology sector suffered from the fall of the Biotech Bubble; as many biotech companies see their stock prices rise rapidly to record levels and then fall to new lows all the time.
On November 21, 1995, the DJIA closed above the 5,000 level (5,023.55) for the first time. Over the next two years, the Dow will quickly rise above 6,000 levels during October in 1996, and 7,000 levels in February 1997. In its higher movement into the record area, the Dow easily crossed the 8,000 level in July 1997. However , then that year during October, events surrounding the Asian Financial Crisis plunged the Dow to a 554 point loss to almost 7,161.15; a savings of 7.18% in what is known as the 1997 Mini-Crash. Although internationally there are negatives surrounding the 1998 Russian financial crisis along with the subsequent collapse of the 1998 derivatives of the long-term Hedge Fund derivatives of Capital Management involving bad bets placed on Russian ruble movements, the Dow will continue to exceed 9,000 levels during April in 1998, sentimentalnya toward the level of 10.000 symbolic. On March 29, 1999, the average closed above 10,000 mark (10,006.78) after seducing for two weeks. It encourages celebrations on the trading floor, complete with party hats. The scene on the stock makes headlines on the front page in many US newspapers such as The New York Times . On May 3, 1999, the Dow reached its first close above 11,000 (11,014.70). The total increase over a decade exceeds 315%; from the level of 2,753 to 11,497.
The Dow averages 5.3% profit annually for the 20th century, Warren Buffett's record is called "a beautiful century"; when he calculated that in order to achieve that return, the index would need to close at around 2,000,000 by December 2099. During the height of the dot-com era, writers James K. Glassman and Kevin A. Hassett went a step further to publish a book titled Dow 36,000: New Strategy to Get Profits from Upcoming Increments in the Stock Market . Their theory is to imply that stocks are still cheap and not too late to benefit from rising prices during the Internet boom.
Characterized by the fear of new investors, the uncertainties of the 2000s (decades) bring to bear significant markets. There is doubt as to whether the cyclic bull market represents a long temporary reflection or a new long-term trend. In the end, there is resignation and widespread disappointment because the lowest position is reviewed, and in some cases, beyond the end of the decade.
Post internet-bubble era
The fourth largest single-day point drop in DJIA's history, and the largest at the time, occurred on September 17, 2001, the first day of trading after the September 11 attacks, when the Dow fell 684.81 points, or 7.1%. However, the Dow has been in a downward trend for most of 2001 before September 11, losing more than 1000 points between Jan. 2 and Sept. 10, and has lost 187.51 points on Sept. 6, followed by a loss of 235.4 points on Sept. 7. By the end of the week, the Dow had fallen by 1.369.70 points, or 14.3%. However, the Dow started the ascending trend shortly after the attack, and quickly regained all ground losses to close above the 10,000 level for the year.
During 2002, the average remained calm without making substantial profits due to a decline in the stock market in 2002 as well as the lingering effects of the dot-com bubble. In 2003, the Dow survived in the range of 7,000 to 9,000 points at the start of the 2000 recession, the Afghan War and the Iraq War. But in December of that year, the Dow returned to the 10,000 mark. In October 2006, four years after its bearish market was low, the DJIA set a new theoretical, intra-day, daily closing, weekly, and monthly highs for the first time in nearly seven years, closing above 12,000 for the first time on the anniversary to 19 from Black Monday (1987). On February 27, 2007, the Dow Jones Industrial Average fell 3.3% (415.30 points), the biggest decline since 2001. The early decline was caused by a global sell-off after China's shares suffered a minor accident, but on April 25, the Dow passed 13,000 in trading and closed on top of that milestone for the first time. On July 19, 2007, the average passed the 14,000 level, completing the fastest 1,000 points for the index since 1999. One week later, intra-day losses of 450 points, due to turbulence in the US sub-prime mortgage market and soaring yuan values, started another fall below the 13,000 mark, about 10% of its highest level.
On October 9, 2007, the Dow Jones Industrial Average closed at a record high of 14,164.53. Two days later on Oct. 11, the Dow trades at an intraday high of 14,198.10, a sign that will not be matched until March 2013. In what typically takes years to achieve; many of the reasons cited for the Dow's rapid rise from the 11,000 level in early 2006 to the 14,000 level at the end of 2007. They include possible takeovers and future mergers, healthy earnings reports particularly in the technology sector, and moderate inflation figures; fueling speculation the Federal Reserve will not raise interest rates.
On September 15, 2008, the wider financial crisis became clear when Lehman Brothers filed for Chapter 11 bankruptcy along with the economic effects of a record high oil price that reached nearly $ 150 a barrel two months earlier. Upon opening that morning, he immediately lost 300 points and overall the DJIA lost more than 500 points just for the sixth time in history, returning to lows in mid-July below the 11,000 level. A series of "bailout" packages, including the 2008 Emergency Economic Stabilization Act, proposed and implemented by the Federal Reserve and US Treasury, as well as FDIC-sponsored bank mergers, do not prevent further losses. After nearly six months of extreme turmoil in which the Dow suffered its biggest one-day point decline, the biggest daily gain point, and the largest intra-day range (more than 1,000 points), the index closed at fresh 12-year lows at 6,547.05. on March 9, 2009 (after an in-day low of 6,469.95 during the March 6 session), the lowest close since April 1997, and has lost 20% of its value in just six weeks.
The 2009-current bull market
Toward the second half of 2009, the average rally to the 10,000 level on optimism that the Final-2000 (Decades) Recession, the US Housing Bubble and the 2008-2009 Global Financial Crisis, eased and may soon end. For a decade, the Dow suffered a substantial setback for a negative return from the 11,497 level to 10,428, losses slightly above 9%.
During the early part of 2010, helped by a loose monetary policy practiced by the Federal Reserve, Dow made remarkable rally efforts, albeit with significant volatility due to escalating global concerns such as the 2010 European sovereign debt crisis, Dubai's debt. crisis, and debt crisis of the United States. On May 6, 2010, the index lost about 400 points all day, then after 2:30 pm EDT, it lost about 600 points in just a few minutes, and got the last amount back quickly. The intra-day change at the lowest point was 998.50 points, representing an intra-day loss of 9.2%. The event, on which the Dow hit a low of 9,869 before recovering to an end with a 3.2% daily loss of 10,520.32, is known as Flash Crash 2010. The index closes half the year at 9,774.02 for a 7.7% loss.
In the middle of this decade, the Dow rose above the peak from October 2007. On May 3, 2013, the Dow surpassed the 15,000 mark for the first time before looming over several milestones of the next millennium thanks to a commendable economic report. The index closed 2014 at 17,823.07 for a gain of 71% for the five years before progress became minimal the following year. However, the remarkable economic factor shown in 2015 caused the Dow to plunge into the correction area for the first time since 2011. In October, the Dow has emerged from a 14% rally from the August lows but failed to reach a record high back. In November and December, the Dow retreated from a 14% rally in October, causing some to call it a bear market. This resulted in the Dow closing at 17,425.03 for 2015, its first annual loss since 2008. After nearly 14 months since the closing of the latest record, the Dow finally reached a new central bank debt record triggered closing on July 20, 2016 at 18,595.03. along with an intraday high of 18,622.01.
During late 2010, despite anticipation of a post-election selloff, the Dow rallied significantly after Donald Trump was elected President. On January 25, 2017, the Dow reached a record high 20,000, rising 1,667 points since its election in November 2016. Throughout the remainder of 2017 and January 2018, the Dow rocketed past several millennium milestones, including a symbolic 25,000 on January 4, 2018. The current highs record 26,616 , 71 reached on January 26, 2018. However, on February 2, 2018, the Dow suffered its biggest loss since Brexit on June 24, 2016. When volatility made the return for next week, the biggest intraday decline was 1.597.08 points and the biggest closing point decline was 1.175.21 points both are set on February 5, 2018 although the percentage change is not as extreme as some stock market crashes ago.
Invest
Investments in DJIA are made widely accessible in equity through exchange-traded funds (ETF) as well as in derivatives through option contracts and futures contracts.
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Some ETFs follow the Dow Jones Industrial Average, including with short or leverage strategies. Largest has assets under management in tens of billions of dollars in 2017.
Due to the emergence of pre-market trading, ETFs deliver very accurate opening values ​​for the average.
Futures contract
In the derivative market, CME Group through its subsidiaries Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT), issued Futures Contracts; E-mini Dow ($ 5) Futures (YM), which tracks the average and trades on the respective bourse floors. Trading is usually done in Open Outcry auctions, or through electronic networks such as CME's Globex platform. Dow Futures is one of the most important premarket tools and reflects the atmosphere in which DJIA will open.
Contract options
The Chicago Board Options Exchange (CBOE) publishes Options Contracts in Dow via the root symbol DJX in combination with a long-term expiration option called DJX LEAPS . There are also options in various ETFs; Performance ETF , Reverse Performance ETF , 2x ETF Performance , Performance Reversed 2x Performance , ETF Performance 3x , and Inverse 3x Performance ETFs .
Calculation
To calculate DJIA, the total price of all 30 shares divided by the divisor, Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that these events do not by themselves alter the numerical value of the DJIA. From the beginning, the initial divisor consisted of a number of original component companies; this initially makes DJIA an average of simple arithmetic. The divisor now, after much adjustment, is less than one (meaning the index is greater than the sum of component prices). It is:
where p is the price of the component stock and d is the Dow Divider .
Events such as share distribution or changes in the list of companies that make up the index change the component price amount. In this case, to avoid discontinuities in the index, Dow Dividers are updated so that the quotes just before and after the event coincide:
Dow Divisor is 0.14523396877348 on September 1, 2017. Currently, any $ 1 price change in a particular stock in an average is equivalent to 6.885 (or 1 ÃÆ' Â · 0.14523396877348) points movement.
Assessment
Market performance
With the entry of just 30 stocks today, critics like Ric Edelman argue that DJIA is not a very accurate representation of overall market performance. However, this is the most widely cited and widely known stock market index. In addition, the DJIA is criticized for being a weighted average price, which gives higher stock prices more influence on average than their lower-priced counterparts, but does not take into account the size of the relative industry or market capitalization of those components. For example, a $ 1 increase in lower stock prices can be negated by a $ 1 decline in stock prices that is much higher, even though lower-priced stocks are changing larger percentages. In addition, the movement of $ 1 in the smallest component of the DJIA has the same effect as the $ 1 movement in the largest component of the average. For example, during September-October 2008, the stock price of reverse split-adjusted former AIG components fell from $ 22.76 on September 8 to $ 1.35 on Oct. 27; contributing to a drop of about 3,000 points in the index.
In January 2018, Boeing and Goldman Sachs were among the highest-priced stocks in the average and therefore had the greatest influence on them. Alternatively, Pfizer and General Electric are one of the lowest-priced stocks in the average and have the least amount of sway in price movements. Many DJIA critics recommend the weighted floating market value & P & amp; P 500 or the Wilshire 5000, the latter including all US equity securities, as a better indicator of the US stock market.
Correlation between components
A study between the Dow Jones Industrial Average component correlations compared with the index movement found that the correlation was higher in the period of time where the average receded and fell. The lowest correlation is when the average is flat or rises in moderation.
See also
- Closing the milestone of the Dow Jones Industrial Average
- Historical records close the Dow Jones Industrial Average
- The largest daily list of changes in the Dow Jones Industrial Average
- Nikkei 225
- The FTSE 100 index
- Dow Jones S & P Index;
References
Further reading
- Stillman, Richard (1986). Dow Jones Industrial Average: History and Role in Investment Strategy . Dow Jones-Irwin.
- Goodrick, D. Scott (2008). Generate Dollar $ and Sense on Wall Street . CreateSpace. ISBN: 978-1438229010.
External links
- Official website
- The Dow Jones Industrial Average Milestone
- Dow Jones Industrial Average Biggest Profits and Disadvantages
- The Dow Jones Industrial Average on NASDAQ
- The Dow Jones Industrial Average on NYSE Euronext
- The Dow Jones Industrial Average at Chicago Board Options Exchange
- Dow Futures Dow Futures is one of the most important premarket tools
- Dow Jones Industrial Average Component Quotes on Yahoo! Finance
- 100 Years of Dow Jones Industrial Average Adjusted to Inflation in MacroTrends
Source of the article : Wikipedia
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