The Dow Jones Industrial Average (DJIA), or simply the Dow (/ˈdaʊ/), is a stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States. Although it is one of the most commonly followed equity indices, many consider the Dow not to be a good representation of the U.S. stock market (compared to total market indexes such as the Wilshire 5000 or Russell 3000) because it only includes 30 large cap companies, is not weighted by market capitalization, and does not use a weighted arithmetic mean.[4][5][6][7]
The value of the index is sum of the price of one share of stock for each component company divided by a factor which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index. Since the divisor is currently around 0.1474, the value of the index is 6.7843 times larger than the sum of the component prices.
It is the second-oldest U.S. market index after the Dow Jones Transportation Average, created by The Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. It is the best known of the Dow Averages, of which the first (non-industrial) was originally published on February 16, 1885. The averages are named after Dow and one of his business associates, statistician Edward Jones. The industrial average was first calculated on May 26, 1896.[2]
The Industrial portion of the name is largely historical, as many of the modern 30 components have little or nothing to do with traditional heavy industry.
The index is maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global and its components are selected by a committee.
The ten components of the index with the highest dividend yields are referred to as the Dogs of the Dow
As of April 2, 2019, the components of the DJIA have changed 53 times since its beginning on May 26, 1896. General Electric had the longest continuous presence on the index, beginning in 1907 and ending in 2018. Changes to the index since 1991 are as follows:
On May 6, 1991, Caterpillar Inc., J.P. Morgan Chase, and the Walt Disney Company replaced American Can, Navistar, and U.S. Steel.[8]
On March 17, 1997, The Travelers Companies, Hewlett-Packard, Johnson & Johnson, and Walmart replaced Westinghouse Electric, Texaco, Bethlehem Steel, and F. W. Woolworth Company.[9]
On November 1, 1999, Microsoft, Intel, SBC Communications, and Home Depot replaced Goodyear Tire, Sears Roebuck, Union Carbide, and Chevron Corporation.[10]
On April 8, 2004, American International Group, Pfizer, and Verizon Communications replaced AT&T Corporation, Kodak, and International Paper.[11]
On February 19, 2008, Chevron Corporation 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, its split-adjusted price per share went from $44 to $85, while the price of petroleum rose from $24 to $100 per barrel.[12]
On September 22, 2008, Kraft Foods Inc. replaced American International Group (AIG) in the index.[13][14]
On June 8, 2009, The Travelers Companies and Cisco Systems replaced Motors Liquidation Company (formerly General Motors) and Citigroup. Cisco became the third company traded on the NASDAQ to be part of the Dow.[15]
On September 24, 2012, UnitedHealth Group replaced Kraft Foods Inc. following Kraft's split into Mondelez International and Kraft Foods.
On September 20, 2013, Goldman Sachs, Nike, Inc., and Visa Inc. replaced Alcoa, Bank of America, and Hewlett-Packard. Visa replaced Hewlett-Packard because of the split into HP Inc. and Hewlett Packard Enterprise.[16][17][18]
On March 19, 2015, Apple Inc. replaced AT&T, which had been a component of the DJIA since November 1916.[19][20] Apple became the fourth company traded on the NASDAQ to be part of the Dow.
On September 1, 2017, DowDuPont replaced DuPont. DowDuPont was formed by the merger of Dow Chemical Company with DuPont.[21]
On June 26, 2018, Walgreens Boots Alliance replaced General Electric, which had been a component of the DJIA since November 1907, after being part of the inaugural index in May 1896 and much of the 1896 to 1907 period.[22][23][24]
On April 2, 2019, Dow Inc. replaced DowDuPont. Dow, Inc. is a spin-off of DowDuPont, itself a merger of Dow Chemical Company and DuPont.[25][26][27]
Investment methods
Investing in the DJIA is possible via index funds as well as via derivatives such as option contracts and futures contracts.
Mutual and exchange-traded funds
The easiest way to invest indirectly in the Dow Jones Industrial Average is to buy an index fund. Either a mutual fund or an exchange-traded fund (ETF) can replicate, before fees and expenses, the performance of the index by holding the same stocks as the index, in the same proportions.[28]. Some ETFs use leverage or short strategies to magnify price movements.[29]
Futures contracts
In the derivatives market, the CME Group through its subsidiaries the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT), issues Futures Contracts; the E-mini Dow ($5) Futures (YM), which track the average and trade on their exchange floors respectively. Trading is typically carried out in an open outcry auction, or over an electronic network such as CME's Globex platform.
Options contracts
The Chicago Board Options Exchange (CBOE) issues option contracts on the Dow through the root symbol DJX. Options on various Dow-underlying ETFs are also available for trading.[30]
The value of the index is sum of the price of one share of stock for each component company divided by a factor which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index. Since the divisor is currently around 0.1474, the value of the index is 6.7843 times larger than the sum of the component prices.
It is the second-oldest U.S. market index after the Dow Jones Transportation Average, created by The Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. It is the best known of the Dow Averages, of which the first (non-industrial) was originally published on February 16, 1885. The averages are named after Dow and one of his business associates, statistician Edward Jones. The industrial average was first calculated on May 26, 1896.[2]
The Industrial portion of the name is largely historical, as many of the modern 30 components have little or nothing to do with traditional heavy industry.
The index is maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global and its components are selected by a committee.
The ten components of the index with the highest dividend yields are referred to as the Dogs of the Dow
As of April 2, 2019, the components of the DJIA have changed 53 times since its beginning on May 26, 1896. General Electric had the longest continuous presence on the index, beginning in 1907 and ending in 2018. Changes to the index since 1991 are as follows:
On May 6, 1991, Caterpillar Inc., J.P. Morgan Chase, and the Walt Disney Company replaced American Can, Navistar, and U.S. Steel.[8]
On March 17, 1997, The Travelers Companies, Hewlett-Packard, Johnson & Johnson, and Walmart replaced Westinghouse Electric, Texaco, Bethlehem Steel, and F. W. Woolworth Company.[9]
On November 1, 1999, Microsoft, Intel, SBC Communications, and Home Depot replaced Goodyear Tire, Sears Roebuck, Union Carbide, and Chevron Corporation.[10]
On April 8, 2004, American International Group, Pfizer, and Verizon Communications replaced AT&T Corporation, Kodak, and International Paper.[11]
On February 19, 2008, Chevron Corporation 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, its split-adjusted price per share went from $44 to $85, while the price of petroleum rose from $24 to $100 per barrel.[12]
On September 22, 2008, Kraft Foods Inc. replaced American International Group (AIG) in the index.[13][14]
On June 8, 2009, The Travelers Companies and Cisco Systems replaced Motors Liquidation Company (formerly General Motors) and Citigroup. Cisco became the third company traded on the NASDAQ to be part of the Dow.[15]
On September 24, 2012, UnitedHealth Group replaced Kraft Foods Inc. following Kraft's split into Mondelez International and Kraft Foods.
On September 20, 2013, Goldman Sachs, Nike, Inc., and Visa Inc. replaced Alcoa, Bank of America, and Hewlett-Packard. Visa replaced Hewlett-Packard because of the split into HP Inc. and Hewlett Packard Enterprise.[16][17][18]
On March 19, 2015, Apple Inc. replaced AT&T, which had been a component of the DJIA since November 1916.[19][20] Apple became the fourth company traded on the NASDAQ to be part of the Dow.
On September 1, 2017, DowDuPont replaced DuPont. DowDuPont was formed by the merger of Dow Chemical Company with DuPont.[21]
On June 26, 2018, Walgreens Boots Alliance replaced General Electric, which had been a component of the DJIA since November 1907, after being part of the inaugural index in May 1896 and much of the 1896 to 1907 period.[22][23][24]
On April 2, 2019, Dow Inc. replaced DowDuPont. Dow, Inc. is a spin-off of DowDuPont, itself a merger of Dow Chemical Company and DuPont.[25][26][27]
Investment methods
Investing in the DJIA is possible via index funds as well as via derivatives such as option contracts and futures contracts.
Mutual and exchange-traded funds
The easiest way to invest indirectly in the Dow Jones Industrial Average is to buy an index fund. Either a mutual fund or an exchange-traded fund (ETF) can replicate, before fees and expenses, the performance of the index by holding the same stocks as the index, in the same proportions.[28]. Some ETFs use leverage or short strategies to magnify price movements.[29]
Futures contracts
In the derivatives market, the CME Group through its subsidiaries the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT), issues Futures Contracts; the E-mini Dow ($5) Futures (YM), which track the average and trade on their exchange floors respectively. Trading is typically carried out in an open outcry auction, or over an electronic network such as CME's Globex platform.
Options contracts
The Chicago Board Options Exchange (CBOE) issues option contracts on the Dow through the root symbol DJX. Options on various Dow-underlying ETFs are also available for trading.[30]
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