Navigating the Dow Jones: Insights into America's Economic Indicator

The Dow Jones, also known as the Dow Jones Industrial Average (DJIA), is a stock market index that includes the 30 most relevant listed companies on the New York Stock Exchange and is positioned as one of the benchmark indicators of the U.S. market. In this article, we will discuss what it is, its composition, and much more.

Various stock market indexes in the U.S. attract global investor interest. One of them is the Dow Jones, also called the Dow Jones Industrial Average (DJIA), an index that includes the 30 largest companies listed on the New York Stock Exchange (NYSE) and, along with the S&P 500 and the Nasdaq 100, is a key indicator of the U.S. market.

The Dow Jones index is one of the oldest and most important in the United States. It was created in 1896 by Charles Dow, founder of the Wall Street Journal, and journalist Edward Jones. This index started by measuring the performance of 12 of the largest U.S. companies operating in key economic sectors. Sectors such as transportation and railroads were initially included in the index.

During this first stage, the Dow Jones calculated its value by dividing the prices of the stocks that were part of the index by 12 at the end of the trading session. Over time, however, this index has evolved in both composition and calculation methods to provide a clearer and more accurate picture of the U.S. market. The Dow Jones currently comprises 30 of the largest companies listed on the New York Stock Exchange (NYSE) and bases its value on a price-weighted system, obtained by adding the share prices of its 30 companies and dividing the result by a divisor known as the ‘Dow divisor’.

Over the years, the Dow Jones Industrial Average has become one of the most relevant indicators of the U.S. stock market and one of the indices most followed and analyzed by investors around the world.

The Dow Jones Industrial Average was created to measure the movements of the most relevant companies in the main industries that make up the U.S. economy. This index calculates its value by adding the prices of the shares of the 30 companies that are part of it and dividing the sum by what is called the ‘Dow divisor.’ This divisor is adjusted periodically to reflect stock splits, spin-offs, or other structural changes.For clarity, it looks like this: Dow Jones Value = Sum of the share price of the 30 companies / Dow Divisor.

Unlike other indexes, the Dow Jones is not weighted by market capitalization but calculates its value based on this formula. As a result, companies with higher-priced shares have a greater weight in the index. In this context, it should be kept in mind that the companies that are part of the DJIA are chosen by a committee made up of three representatives of the Dow Jones itself along with two members of the Wall Street Journal. Among the criteria that are taken into account at the time of selection, the following stand out:

• Company reputation
• The companys growth forecast, which must be solid and stable.
• Investor interest
• Their role in the U.S. economy, in the sense that they must be linked to key sectors for the market.
• Position within the industry, in the sense that they must be among the leading companies in the sector to which they belong.
• Companies that are part of the Dow Jones index must be based in the United States and listed either on the New York Stock Exchange or NASDAQ.

Since its inception, the Dow Jones index has been composed of the most relevant companies in the U.S. economy. During its first stage, this index was made up of only 12 companies, closely related to the commodities industry, which had a significant influence on the U.S. economy at the time. That said, the first companies to form part of the Jones Industrial Average were:

• American Cotton Oil
• American Sugar
• American Tobacco
• Chicago Gas
• Distilling & Cattle Feeding
• General Electric
• Laclede Gas
• National Lead
• North American
• Tennessee Coal Iron and RR
• U.S. Leather
• United States Rubber

As time went by, Dow Jones continued to make changes in its composition, to provide a correct picture of the reality of the U.S. market. Technological advancements that transformed the global economy were reflected in the index, as older companies were replaced by those from new industries. Having mentioned this, today the companies listed in the Dow Jones Industrial Average are the following:

• 3M
• American Express
• Amgen
• Apple
• Boeing
• Caterpillar
• Chevron
• Cisco Systems
• The Coca-Cola Company
• Dow
• Goldman Sachs
• Home Depot
• Honeywell INTL
• IBM
• Intel
• Johnson & Johnson
• JPMorgan Chase
• Mcdonalds
• Merck
• Microsoft
• Nike
• Procter & Gamble
• Salesforce
• Travelers COS
• UnitedHealth Group
• Verizon
• Visa
• Walgreens Boots
• Walmart
• Walt Disney