Dow Jones Industrial Average (DJIA)
Candlefocus EditorThe Dow is a price-weighted index, meaning the companies included in the index are weighted based on the price of the company's stock. Companies with higher stock prices will have more influence than those with lower stock prices. This system of weighting puts an emphasis on price movements rather than market capitalization, which is how most modern indices measure performance. Due to the Dow's heavy emphasis on price movements, it can be more volatile than some other indices.
The Dow Jones Industrial Average includes a broad mix of some of the best known companies in the world. This includes companies such as Apple Inc., Microsoft Corporation, Walmart, and Coca-Cola. The stocks in the index are chosen to represent the overall performance of the US economy, with the intention being to provide a real-time indicator of economic activity. Because of this, the composition of the index can change during times of economic uncertainty or boom.
The Dow Divisor is a factor used to maintain consistency in the index, and it adjusts when stocks are added, dropped, or split. This divisor compensates for changes that occur over time and allows the index to maintain the same total point value. Without the Dow Divisor, the average of the companies that make up the index would change and dip whenever stocks were added or dropped.
Overall, the DJIA has remained a powerful driver of market sentiment and economic performance since it was first created. Despite its reputation as an outdated model, the DJIA maintains its popularity as a way to gauge changes in the US economy and the stock market.