What is the Dow Jones Industrial Average (DJIA) and what stocks are in it?
The Dow Jones Industrial Average is also called the DJIA, Dow 30 or is referred to as the Dow Jones Index or just simply the Dow. Created by the Wall Street Journal editor and Dow Jones and Company Founder, Charles Dow, The Dow Jones Industrial Average is one of several stock market indexes.These indexes are used to measure a variety of market performances.The Dow Jones Industrial Average is an indicator of how the entire stock market is performing based on the price of a certain thirty "blue chip" stocks."Blue Chip" stocks are used since they tend to be the most traded stocks but not necessarily the best performing.The average on this index was developed by Charles H. Dow in 1896. He developed this index as a way to gauge the performance of the industrial component of America's stock markets.It is ironic that today few industrial stocks are a part of the market yet despite this the Dow Jones Industrial Average is the oldest continuing U.S. market index.
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A look at the Dow Jones Industrial Average today reflects the average of 30 of the largest and most widely held public companies in the United States.As noted before since few of the 30 modern components have little to do with heavy industry the industrial portion of the Dow's name is largely historic. The Dow Jones Average does not show the actual average of the stock prices but is currently a scaled average.This is done to compensate for the effects of stock splits and other adjustments. A scale factor is used to mulitply withthe actual prices ofthe stocks.This scale factor changes over time but is still used to generate the value of the index.
The major criticism of the Dow Jones Industrial Average is that it is a price-weighted average.This tends to give higher-priced stocks more influence over the average than their lower-priced counterparts. This can produce misleading results with the higher-priced stocks looking like they have better increases overall.Many critics feel that the inclusion ofonly 30 stocks in the average is not a fair or clear picture of market performance and should not be usedas an indicator of overall market performance. These same critics of the DJIA recommend usingthe float-adjusted market-value weighted S&P 500 index as a better indicator of the wider economy.
Another issue many critics havewith the Dow Jones Industrial Averageis that not all 30 companies open at the same time in the morning. Just a few companies on the Dow open at the start and the posted opening price of the Dow is determined by the price of those few components that open first.In additionthe previous day's closing price is reflective of the remaining companies that haven't opened yet; therefore, the posted opening price on the Dow will always be close to the previous day's closing price.This can be seen clearly when examiningDow price history.Because of this the Dowwill never accurately reflect the true opening prices of all its companies.
The editors of The Wall Street Journal occasionally change the individual companies of the Dow as market conditions warrant. The individual weightings are adjusted when the companies are replacedso that the value of the average is not directly affected by the change.
Today The Dow Jones Industrial Average consists of the following 30 companies:
- 3M Co. (NYSE: MMM) (conglomerates, "manufacturing")
- ALCOA Inc. (NYSE: AA) (aluminum)
- Altria Group Inc. (NYSE: MO) (tobacco, foods)
- American Express Co. (NYSE: AXP) (credit services)
- American International Group Inc. (NYSE: AIG) (property and casualty insurance)
- AT&T Inc. (NYSE: T) (telecoms)
- Boeing Co. (NYSE: BA) (aerospace/defense)
- Caterpillar Inc. (NYSE: CAT) (farm and construction equipment)
- Citigroup Inc. (NYSE: C) (money center banks)
- Coca-Cola Co. (NYSE: KO) (beverages)
- E.I. du Pont de Nemours and Co. (NYSE: DD) (chemicals)
- Exxon Mobil Corp. (NYSE: XOM) (major integrated oil and gas)
- General Electric Co. (NYSE: GE) (conglomerates, media)
- General Motors Corp. (NYSE: GM) (auto manufacturers)
- Hewlett-Packard Co. (NYSE: HPQ) (diversified computer systems)
- Home Depot Inc. (NYSE: HD) (home improvement stores)
- Honeywell International Inc. (NYSE: HON) (conglomerates)
- Intel Corp. (NASDAQ: INTC) (semiconductors)
- International Business Machines Corp. (NYSE: IBM) (diversified computer systems)
- Johnson and Johnson (NYSE: JNJ) (consumer and health care products conglomerate)
- JPMorgan Chase and Co. (NYSE: JPM) (money center banks)
- McDonald's Corp. (NYSE: MCD) (restaurant franchise)
- Merck and Co. Inc. (NYSE: MRK) (drug manufacturers)
- Microsoft Corp. (NASDAQ: MSFT) (software)
- Pfizer Inc. (NYSE: PFE) (drug manufacturers)
- Procter and Gamble Co. (NYSE: PG) (consumer goods)
- United Technologies Corp. (NYSE: UTX) (conglomerates)
- Verizon Communications Inc. (NYSE: VZ) (telecoms)
- Wal-Mart Stores Inc. (NYSE: WMT) (discount, variety stores)
- Walt Disney Co. (NYSE: DIS) (entertainment)
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