What is the Dow Jones Index and which 30 companies make the ...
The Dow Jones Industrial Average Index (DJX: .DJI) closed at 42,342.24 points overnight, up 0.036%.
Only 30 companies make up this historical index, which is the world's oldest market indices.
Its co-creators were United States journalists Charles Dow and Edward Jones.
The pair created a financial news service called Dow Jones & Company, which delivered bulletins to Wall Street traders. This led to the creation of The Wall Street Journal in 1889, with Dow as the founding editor.
The pair created the Dow Jones Industrial Average Index in 1896 as a way of measuring the stock market.
'The Dow' has changed form over the years.
When it was launched, it only included 12 industrial stocks.
Original members included General Electric Co (NYSE: GE), American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, U.S Rubber, and Tennessee Coal & Iron.
Today, it tracks the performance of 30 large blue-chip stocks from the S&P 500 Index (SP: .INX), which are purposely selected for inclusion by a committee.
The selected companies are large in size and market leaders in their fields.
The index remains highly esteemed today and is considered a barometer for US economic health.
How is the Dow Jones Index different to the S&P 500?The Dow Jones Industrial Average Index is different from most market indices in that it does not rely on market capitalisation from the largest to the smallest for its formation.
Instead, a committee selects the stocks based on various criteria.
According to S&P Global:
While stock selection for The Dow is not governed by a strict set of rules, the committee focuses on an eligible company's reputation, its history of sustained growth, its interest to investors, and its sector representation of the broader market.
Over the past 15 years, for example, a number of technology companies have been added, reflecting the growth of the sector within the U.S. equity market.
The index committee meets regularly and makes changes to the index on an as-needed basis. There are five people on the committee — three from S&P Dow Jones Indices and two from The Wall Street Journal.
The Dow Jones Industrial Average Index steers clear of extremely high-priced stocks to prevent distortion.
According to S&P Global:
The reason is that changes in the stocks' prices could exert too great an influence on the index, making The Dow a less reliable measure of overall market performance.
As a general rule, the committee monitors whether the highest-priced stock in the index has a price more than 10 times that of the lowest.
The index is also price-weighted, which means that price changes in the highest-priced stocks have a greater impact on the index than changes in the lowest-priced stocks.
S&P Global says this makes the Dow Jones Index more "value-oriented" than the S&P 500 because the stock prices of well-established, large-cap companies tend to be less volatile.
The Dow Jones Industrial Average Index covers all market sectors except two: utilities and transportation.
These sectors have their own indices, the Dow Jones Transportation Average and the Dow Jones Utility Average.
In terms of sector representation today, the Dow Jones Industrial Average Index is dominated by financial stocks, at 23.9%. Technology is 19.4%, healthcare is 15.7%, consumer discretionary is 13.8%, industrials are 12.7%, materials are 5.4%, consumer staples are 4.6%, and both energy and communications are 2.2%.
Recent performanceS&P Dow Jones Indices senior index analyst Howard Silverblatt discussed the performance of the Dow Jones Industrial Average Index in November:
The Dow Jones Industrial Average … posted seven new closing highs in November, also closing the month at a closing high, and trading above 44,000 and 45,000 for the first time (reaching 45,071.29 intraday, with a closing high of 44,910.65, shy of the 45,000 mark).
The market then moved past its relief rally to asset and issue reallocation, as it digested the impact of potential future government policies, regulations and spending.
For the month, the index posted a broad 5.73% gain, as all 11 sectors gained …
Consumer Discretionary did the best, up 13.24% and Health Care did the worst, up 0.13%.
According to the fact sheet, the Dow Jones Industrial Average Index has recorded a net total return of 20.59% in the year to 29 November. Its 10-year annualised average return is 11.42%.
Here is a list of the 30 companies currently in the Dow Jones Industrial Average Index.
3M Company (NYSE: MMM) American Express Company (NYSE: AXP) Amgen Inc. (NASDAQ: AMGN) Amazon.com, Inc. (NASDAQ: AMZN) Apple Inc. (NASDAQ: AAPL) The Boeing Company (NYSE: BA) Caterpillar Inc. (NYSE: CAT) Chevron Corporation (NYSE: CVX) Cisco Systems, Inc. (NASDAQ: CSCO) The Coca-Cola Company (NYSE: KO) The Walt Disney Company (NYSE: DIS) The Goldman Sachs Group, Inc. (NYSE: GS) The Home Depot, Inc. (NYSE: HD) Honeywell International Inc. (NASDAQ: HON) International Business Machines Corporation (IBM) (NYSE: IBM) Johnson & Johnson (NYSE: JNJ) JPMorgan Chase & Co. (NYSE: JPM) McDonald's Corporation (NYSE: MCD) Merck & Co., Inc. (NYSE: MRK) Microsoft Corporation (NASDAQ: MSFT) Nike, Inc. (NYSE: NKE) NVIDIA Corporation (NASDAQ: NVDA) Procter & Gamble Company (NYSE: PG) Salesforce, Inc. (NYSE: CRM) The Sherwin-Williams Company (NYSE: SHW) The Travelers Companies, Inc. (NYSE: TRV) UnitedHealth Group Incorporated (NYSE: UNH) Verizon Communications Inc. (NYSE: VZ) Visa Inc. (NYSE: V) Walmart Inc. (NYSE: WMT)
