Why Is the Dow Jones Industrial Average Important?

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The Dow Jones Industrial Average is a stock market index. It tracks the changes in value of 30 select stocks.

History

  • The Dow Jones Industrial Average, referred to as DJIA, the Dow or the Dow Jones, is the oldest index tracking the U.S. stock market. It was started by Charles Dow in 1896 and originally tracked 12 stocks.

Function

  • Today the Dow consists of 30 stocks selected by the Dow Jones Company. The Dow 30 stocks are considered to be the top companies in America. Contrary to the index' name, not all of the Dow 30 are industrial companies. Representative companies include Catepillar, IBM, Coca Cola, Wal-Mart and JP Morgan Chase.

Significance

  • The DJIA is the most widely followed stock market indicator in the financial, mainstream and international news sources. Much broader measures of stock market activity exist, including the S&P 500 index, which monitors the stock prices of the top 500 U.S. corporations, and the Wilshire 5000, which monitors the stocks of all U.S. companies with measurable price activity. Still, when the news declares the market was up or down, they are generally referring to the Dow Jones Industrial Average.

Fun Fact

  • The Dow first passed the 1,000 mark in November 1972 and crossed 10,000 for the first time on March 29, 1999.

Alternatives

  • Professional investors also watch the S&P 500 index and the NASDAQ Composite, which is heavily weighted in technology companies.

References

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