Dow Jones Industrial Average (DJIA) – Share Index In The USA

The Dow Jones Industrial Average happens to be the most well-known share index in the USA. Developed by Charles Henry Dow and originally contained just 12 American companies.  The Dow Jones was published for the first time in May 1896 and opened at a level of 40.94 points. Currently, the Dow Jones Industrial Average consists of the 30 most important. Market-leading companies on the American stock exchange which reflects their growth.

Dow Jones Industrial Average

The Dow Jones is a price index, much like the. Swiss Market Index (SMI). The shares that are being included in it are. Weighted according to price; the index level here represents the average. The shares included in it. Dividend payments on the other hand are not considered in the index.

For a company to be included in the Dow Jones Industrial Average. It is not dependent on defined criteria. Rather. An independent Wall Street Journal commission decides whether a share is to be included or excluded. There are no fixed times for reviewing the composition of the index because the changes are only made by the commission as and when they are wanted.

Also, the Dow Jones Industrial Average is traded on Wall Street, and each trading day is between 3:30 pm and 10:00 pm CET.

The Dow Divisor and Index Calculation

Also, the Dow Divisor is a predetermined constant, which is used in determining the effect of a one-point move in any of the approximately thirty stocks which comprise the Dow. The current divisor is on the Wall Street Journal.

The Dow is not calculated with the aid of the weighted arithmetic average, and it does represent its component companies’ market capitalization. Instead, it reflects the sum of the price of one share of stock for all the components, which is divided by the advisor. Therefore, a one-point move in any of the component stocks will move the index by an identical number of points.

DJIA Price = SUM (Component stock prices)  / Dow Divisor.

Dow Jones Industrial Achievements

Dow Jones has made some remarkable milestones achievements, which includes the following:

The first was on March 15, 1933: Which was the largest one-day percentage gain in the index that happened during the 1930s bear market, which totaled 15.34%. The Dow gained 8.26 points closing at 62.10.

On October 19, 1987, there was the largest one-day percentage drop which happened on Black Monday. The index fell at 22.61%, with no evident explanations behind the crash, even though program trading may have been a contributing factor.

On September 17, 2001, the fourth-largest one-day point drop-and the largest at the time happened the first day of trading following the 9/11 attacks in New York City.

On May 3, 2013, the Dow surpassed the 15,000 marks for the first time in history.

January 25, 2017, saw the Dow closed above 20,000 points for the first time.

By January 4, 2018, the index closed at 25,075.13, which was the first close above 25,000 points.

January 17, 2018, the Dow closed at 26,115.65, the first close above 26,000 points.

February 5, 2018, the Dow fell a record 1175.21 points.

On September 21, 2018, the index got to its current record of 26,743.50.

December 26, 2018, saw the Dow recording its largest one-day point gain of 1086.25.

July 11, 2019, the Dow broke above 27,000 for the first time in its history ever.

By February 12, 2020, the Dow reached a new all-time high of 29,551.

In March 2020, the Dow Jones crashed back-to-back record. Down days amid the global coronavirus pandemic. And broke below 20,000, and falling 3,000 points in a single day in the midst of 2,000. And 1,500 up and down moves.

Limitations of the Dow Jones

Some critics of Dow Jones are of the opinion that it does not significantly represent the state of the U.S. economy because it only consists of 30 large-cap U.S. companies. They are of the opinion that the number of companies is too small and it neglects companies of different sizes. Many critics also believe the S&P 500 is a better representation of the economy as it includes significantly more companies, 500 versus 30, which by nature is more diversified.

Also, the critics believe that factoring only the price of a stock in the calculation does not correctly depict a company, as much as considering a company’s market cap would.

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