The Dow Jones industrial average is constantly at the forefront of financial news. And it can be a powerful economic tool for anyone trying to assess the state of the U.S. economy.
For instance, during the financial collapse of 2008, the Dow Jones fell almost 20 percent in one week.
But this tool isn’t much good without knowing a Dow Jones industrial average definition. And a background behind the popular stock market index can help map out a Dow Jones meaning.
We’re here to help. Here’s the Dow Jones explained:
A Simple Dow Jones Industrial Average Definition
People looking for a Dow Jones Industrial average definition have good reason. It has deep roots in the financial community. That’s because it is the oldest running market index in the United States.
What does that mean? Basically, the Dow Jones is a way of measuring a group of top stocks in the United States.
To determine the final number for the Dow Jones, economists look at 30 blue-chip stocks in the United States. Blue-chip stocks are simply companies that are big and well-established.
The Dow Jones industrial average today looks at the stock price of these big companies. And it divvies them up into a specially-weighted average.
This final number is used to give everyone a reflection of the U.S. economy as a whole. And the economy is something that can have a big effect on financial experts as well as all citizens.
That’s a main reason the Dow Jones industrial average is reported on so often.
But to get a better Dow Jones definition, it’s a good idea to look at its history.
How the Dow Jones Came About
The Dow Jones was launched just before the dawn of the 20th century. And it originally was a true average of stock prices.
But back then, it was made up of 12 stocks rather than 30. They figured the average by adding up the price of one share of each stock and dividing it by the total number of stocks in the group.
As times changed, the Dow Jones calculators wanted the average to still be comparable to past markets.
Now the Dow Jones uses a special calculation. It considers things stock splits or the addition of new corporations. That means different stocks within the Dow Jones are assigned a different weight within the index.
To account for other financial changes, the Dow Jones today ends up using an adjusted number to divide up the final average.
When calculating today’s Dow Jones, stocks that are more expensive will have a heavier impact on the final number than cheaper stocks.
What Makes up the Dow Jones?
Today’s Dow Jones is made up of different companies that weren’t part of its original 12 stocks. And today’s 30 names run across several different sectors.
Some big names on today’s Dow Jones include 3M, Microsoft, Coca-Cola, and American Express.
These companies pull in a lot of money and run internationally. That means they tend to be more solid and less risky than most stocks.
Finances Beyond the Dow Jones
With that, newbies should have a good Dow Jones industrial average definition. But there’s a lot more to be gained from the market and in personal finances.
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