Perhaps you turned on your TV recently and heard the anchor say something like this: “The Dow Jones Industrial Index finished 1.5% on the day, up 400 points”.
I’m here today to not only answer your question, but also help you impress your friends with your newfound investment knowledge.
What is the Dow Jones Industrial Average?
The Dow Jones Industrial Average (DJIA) consists of 30 U.S companies. There is a special committee that selects companies that best represent the performance of the U.S. economy.
Some companies that are included in the index are: Apple, Disney, Coca-Cola, McDoanlds, and Microsoft.
How is the DJIA calculated?
The DJIA is calculated by using stock prices of the different companies in the index. Based on this fact, companies that have higher stock prices have bigger impacts on the movement of the index.
So what conclusions can we draw?
If the DJIA is up 1.5% of the day, we can draw the conclusion that the majority of companies (not necessarily ALL) within the index ended the day with higher stock prices. On the other hand, if the DJIA decreased 1.5% for the day, companies ended the day with lower stock prices (again, not necessarily ALL).
Why is the DJIA Important?
As mentioned earlier, the index is used as a proxy to represent the U.S. economy. News events, company earnings, and geopolitical risks can affect the performance of stocks and ultimately affect the performance of the DJIA.
It’s that simple, 30 companies that represent the U.S. economy! Think of how much smarter you are now next time you turn on the TV and the anchor provides a summary of how the DJIA performed for the day.
Stay tuned for more topics on investments!