He falls and rises, breaks records and experiences “Black Mondays”. Its name is well known, but what it is is still unclear. Let's figure it out. Let's start from afar.

What is a stock exchange?

This is a market where brokers and traders buy and sell securities: stocks, bonds, futures, options, government obligations, the prices of which are determined by supply and demand. This ensures the movement of capital - from one industry to another, from country to country. Every state with a market economy has its own stock exchange, or even more than one. NYSE ( New York Stock Exchange)– the largest. The second in the world ranking in terms of capitalization - NASDAQ - is also American. She specializes in high-tech stocks.

The Dow Jones Index (DJ, Dow Jones Industrial Average, DJIA, Dow Jones, Dow, Dow 30) - an index of the 30 largest companies in the United States - is traded on these two exchanges.

Who invented the index?

The oldest American and most popular stock index in the world was created in 1884 by the editor of The Wall Street Journal, Charles Henry Dow, and his business partner, statistician Edward Davis Jones, to objectively display the financial health of the market in a business newspaper. .

Nine of the 10 large companies whose quotes were initially taken into account by the inventors of the index were railroads. The 1880s in America were the years of active construction of railways.

How is it calculatedDow Jones?

Over the years, the calculation of the Dow Jones Industrial Average has become much more complex, with many factors taken into account. It is now calculated as a scaled average of share prices: that is, the sum is divided not by the number of companies, but by a divisor that changes each time shares are combined or split.

The number of companies - 30 - has not changed since 1928, but the list compiled by the editors of The Wall Street Journal undergoes changes from time to time. The place of those leaving is taken by those whose share in the relevant market becomes larger.

Now the “mighty thirty” looks like this: 3M, Alcoa, American Express, AT&T, Bank of America, Boeing, Caterpillar, Chevron Corporation, Cisco Systems, Coca-Cola, DuPont, ExxonMobil, General Electric, General Motors, Hewlett-Packard, Home Depot, Intel, IBM, Johnson & Johnson, JPMorgan Chase, Kraft Foods, McDonald's, Merck, Microsoft, Pfizer, Procter & Gamble, The Travelers Companies, United Technologies Corporation, Verizon Communications, Wal-Mart, Walt Disney.

The first composition in the current version of the index is represented only by General Electric.

The value of the first index, published at the end of the 19th century, was 40.94 points. The 1,000 point milestone was reached in 1972. In March 1999, the value of 10,000 was reached. On January 4, 2018, another record was set - 25,000 points.

There were, however, failures: on “Black Monday” - October 19, 1987 - the index fell by 22.6% and this event affected the entire world economy.

What does it showDow Jones?

The Dow Jones is called a barometer of American development and a global indicator.

The growth of the index is associated with an increase in the value of companies from the “index basket” (and therefore the entire American economy); the fall reflects a decline in business activity and a decrease in the capital of the main business players.

The index, which measures market sentiment in the world's largest economy, is closely watched by investors.

What affects the index?

Not everything depends on the state of affairs in 30 key American companies. The index is influenced by military actions, terrorist attacks, political unrest both in the country and abroad, natural disasters - in short, everything that can strike a local or global economy.

How to make money on the Dow Jones?

The Dow Jones, as a financial instrument, allows investors to increase their profits. By relying on clear index signals, you can predict whether a stock will continue to rise or not. If a stock and index are rising, growth is likely to continue. If a stock rises and the index declines, the stock is likely to decline in the future.

But the index itself is an exchange asset, and traders successfully make money on it. There are several types of index investing. This includes the purchase of shares of companies that make up the index, the purchase of futures on the index or shares of an ETF fund that invests in the index.

Name Dow Jones has become synonymous with the stock exchange and the US economy. One of the most popular and important stock indexes is the Dow Jones index.

Dow Jones

In 1883 In the same year, Charles Dow (1851–1902) and Edward Jones (1856–1920) began publishing a two-page newspaper with data on American financial markets.

This was the beginning of the well-known Wall Street Journal.

At that time it was the first newspaper to publish daily stock market reports and it immediately became very popular.

Since the newspaper published data that was known only to a few, now everyone could assess the strength of competitors. In order not to disclose all the information about the companies, Dow and Jones were forced to introduce a new indicator that reflected the average value of the ten largest industrial companies. This was the first Dow Jones index.

The index currently contains the 30 largest companies:

• 3M Co.(NYSE: MMM) (industrial conglomerate)
  American Express Co.(NYSE:AXP) (credit services)
  AT&T(NYSE: T) (telecommunications)
  Boeing Co.,The(NYSE: BA) (Aerospace & Defense)
  Caterpillar, Inc.(NYSE: CAT) (agricultural and construction equipment)
  Cisco Systis(NASDAQ: CSCO) (telecommunications)
  Chevron Corp.(NYSE: CVX) (oil and gas company)
  Coca-Cola Co.(NYSE:KO) (beverages)
  E.I. du Pont de Niours & Co.(NYSE:DD) (chemicals)
  Exxon Mobil Corp.(NYSE: XOM) (oil and gas company)
  General Electric Co.(NYSE: GE) (industrial conglomerate)
  The Goldman Sachs Group, Inc.(NYSE:GS)
  Home Depot, Inc.(NYSE: HD) (construction supply stores)
  Intel Corp.(NASDAQ: INTC) (semiconductors)
  International Business Machines Corp.(NYSE: IBM) (computing)
  JPMorgan Chase and Co.(NYSE: JPM) (financial group)
  Johnson & Johnson Inc.(NYSE: JNJ) (chemicals, pharmaceuticals)
  McDonald's Corp.(NYSE: MCD) (quick service restaurants)
  Merck & Co., Inc.(NYSE: MRK) (pharmaceuticals)
  Microsoft Corp.(NASDAQ: MSFT) (software)
  Nike Inc.(NYSE:NKE)
  Pfizer, Inc.(NYSE: PFE) (pharmaceuticals)
  Procter & Gamble Co.(NYSE: PG) (household chemicals)
  Travelers(NYSE: TRV) (insurance)
  UnitedHealth Group Inc(NYSE: UNH) (healthcare)
  United Technologies Corp.(NYSE: UTX) (industrial conglomerate)
  Verizon Communications(NYSE: VZ) (telecommunications)
  Visa, Inc.(NYSE: V)
  Wal-Mart Stores, Inc.(NYSE: WMT) (trade chain)
  Walt Disney Co., The(NYSE: DIS) (entertainment)

The Dow Jones Industrial Average (DJIA) indicates the activity of the American Stock Exchange and the economy, since the industrial sector is the richest.

The DJIA distribution is as follows:

• Industry: 20.41%
• Consumer services: 16.36%
• Technology: 15.58%
• Healthcare: 11.45%
• Financial: 11.13%
• Oil and Gas: 10.92%
• Consumer goods: 6.16%
• Telecommunications: 4.73%
• Basic materials: 3.26%

One of the significant disadvantages of the Dow Jones index is the way it is calculated - when calculating the index, the prices of the stocks included in it are added up and then divided by an adjustment factor. As a result, even if one company is noticeably smaller in capitalization than another, but the value of one of its shares is higher, then it has a stronger influence on the index.

All this is necessary to know to fully understand the Dow Jones index, because now you know what the index depends on most and what can affect changes in its price.

How to make money on the Dow Jones index

On the one side Dow Jones index easy to analyze, since there is a lot of news on the index. For example, many exchange participants work only with this index, making dozens of transactions per day.

But on the other hand, it is very difficult to analyze the index, since it is not always possible to keep track of everything. In addition, the price of the index is influenced not only by the companies included in it, but also by the global economy and politics.

Eg , WhenThe Dow Jones index hit an intraday high of 5 months, thanks to news from Russia. According to the Secretary of the Russian Security Council, Russia will continue to act as a mediator between Kiev and South-East Ukraine and make efforts to de-escalate the conflict.

As you can see, the news is not at all related to , and other companies in the index, but it affected the American economy, political stability and the Dow Jones index as an indicator of the US economy.

To make money on the Dow Jones index, it is important to understand that this index has become the personification of Wall Street and the American economy as a whole.

On the economic calendar, you need to keep an eye on US industrial data, a major economic indicator with a high degree of importance.

You can use forecasts in which the index is named US 30- this index name is quite common on some exchanges.

On the page MarketWatch(http://www.marketwatch.com/investing/index/djia/news) you can view the latest news regarding the index.

As you can see, technical analysis does not always help here, since the price of the index directly depends on the economic and political situation in the world. News comes out quite often and the index follows world events. Personally, I am not sure that indicators or other technical analysis tools can accurately predict price. I may be wrong, but it seems to me that fundamental analysis in this case will be more reliable in the long term.

Where to make money on the Dow Jones index

You need to determine whether the price will rise or fall within a specified time frame, for example the next 20 minutes. Indicate the option period, investment amount and indicate your forecast.

• If you think that the price will rise, choose an option UP;
• If you think the price will fall, choose an option DOWN.

If your prediction turns out to be correct, you will receive 70-85% profit, even if the price changes at least 0.001 points towards your forecast.

Having opened it, I selected the asset - Dow Jones index:

I set the option expiration time to 18:10 , the option will close in 16 minutes:

The graph shows that now 17:54 , which means I need to make a price forecast for 16 minutes. Based on technical analysis, I invested with the condition of price growth - button UP:

Soon I returned to the broker’s website and saw the result:

In 16 minutes, the Dow Jones index brought me $42.9 in net profit!

From an investment of $55 I returned $97.9.

The Dow Jones Industrial Average (DJIA) is one of the stock indices created by the Wall Street Journal and one of the founders of Dow Jones & Company, Charles Dow.

The index was first calculated on May 26, 1896. Today it is owned by S&P Dow Jones Indices, which is majority owned by McGraw-Hill Financial.

The Dow Jones Industrial Average is just one of the indices created by Charles Dow. Today, the American Dow Jones Index includes the 30 largest companies operating in the United States.

The presence of the word industrial in the name of the index is largely a historical trace, since today the current 30 companies included in the index do not belong to what is traditionally considered heavy industry.

The word “average”, which is translated from English as “average, averaged”, does not quite accurately reflect the essence. The Dow Jones Industrial Average doesn't exactly show average prices, but rather the sum divided by a divisor that changes each time there are stock splits or dividend payments.

What does the Dow Jones Industrial Average mean?

Calculation DJIA based on stock prices, not . The Dow Jones Industrial Average is not dependent on the number of shares outstanding.

Few people really understand what the Dow Jones Industrial Average shows. What does news mean like the DJIA lost 120.23 points to close at 16,955.59, or the Dow Jones hit 17,138.20? First you need to understand what the quote 16,955.59 or 17,138.20 reflects.

For better understanding, let's first take a look at the costing process. Back in 1896, Charles Dow added up the stock prices of 12 companies and divided by 12. Later in 1923, Arthur “Pop” Harris was appointed to calculate these values. After his retirement, computers began to be used to calculate the index.

The process today is significantly different from how Mr. Doe used to do it. To use historical data, a special divisor was invented. Over the past 118 years, the index has experienced many splits, divisions of companies, and other things that could greatly distort the index's readings if a constantly changing divisor were not used.

Let's look at an example. The entire sum of prices after the close of trading on July 25, 2014 for the 30 shares included in the index amounted to 2,641.03. The divisor for that day is 0.15571590501117 (DJIA Divisor, it is published every day in the Wall Street Journal). If you divide the sum of the closing prices by the divisor, you get 16,960.57. This is the value of the Dow Jones Industrial Average at the close of trading on July 25th.

Obviously, a change in the price of any of the 30 stocks will definitely affect the value of the Dow Jones Index.

The American Dow Jones Index is a simple weighted average of the sum of the prices of the stocks included in the list. It is acceptable to consider the index value as a price. If index quotes fell by 80 points by closing, then stock prices began to cost $80 dollars cheaper (taking into account the divisor).

An increase in the index value indicates an increase in prices for the corresponding shares and vice versa. It is important to understand that a significant increase in index quotes can be caused by an increase in the price of just one company's shares. The growth of some securities may outweigh the decline of others.

That is, if you have stocks in your portfolio that are included in the Dow Jones index, then its increase does not mean that your assets have increased in price. The index shows a weighted average of 30 companies at once.

Over its 100-year history, the Dow Jones index has become one of the most popular and today is considered as the main barometer of the state of the American stock market.

The DJIA, of course, has its drawbacks. Firstly, the calculation methodology does not take into account the size of companies. Second, the 30 companies included in the index represent only a small portion of the huge American stock market, where shares of 10,000 companies are listed.

Despite its shortcomings, the index remains the most popular. When the news says that the Dow Jones Industrial Average has posted record gains, the stock market is (on average) on the rise.

Dow Jones Index Companies

The list of companies included in the Dow Jones index is constantly changing. Rarely, but constantly. Some companies have been in the index many times; giant corporations have not left it for many years.

There are many places on the Internet that allow you to view a current list of companies. For example, you can view it in a fairly convenient form on the CNN website or on the official website of the Dow Jones index in the corresponding section.

What does a fall in the Dow Jones Industrial Average mean and what does it mean?

A decline in the Dow Jones Industrial Average can be triggered by a decline in the stock prices of one company or all of them at once. For a fall in the prices of one security to cause a fall in the entire index, there must be a truly significant change in price.

However, a really strong drop in the Dow Jones Industrial Average usually occurs when prices for most of the stocks on the list decline. Such events are called "collapses".

Investors usually select companies to invest in after evaluating the business. They prefer to invest in companies that show good earnings and have good potential for future development.

If companies publish “bad” financial reports, then investors begin to get rid of such securities. This does not always apply exclusively to negative financial indicators. For example, Apple shares dropped significantly after the last presentation because investors did not see anything fundamentally new among the presented products. There are many factors that influence stock market pricing.

The Dow Jones Industrial Average may fall due to the general weakening of the economy. The reason for the fall is sometimes a decrease in oil prices, economic crises (in the USA and China due to the strong dependence of the economies of the two countries), natural disasters and other global fundamental factors.

Because the Dow Jones Industrial Average contains companies from different industries, financial analysts view it as a unique indicator of the overall health of the US economy. When the DJIA dips slightly, investors tend to buy shares because they believe that prices will soon return to their previous values ​​and make good money.

A significant drop in the Dow Jones Industrial Average, on the other hand, would be seen as a very negative factor. When there is a big crash, investors panic and start dumping stocks. Moreover, the word panic is very appropriate here, since inexperienced investors and traders do not even try to understand the reasons for the fall.

A significant drop in the Dow Jones Industrial Average in the United States has a fairly strong psychological effect on society. People are starting to save and be more careful with their savings. As a result, the demand for various goods falls, unemployment rises and the overall productivity of the country decreases.

How does the Dow Jones index affect the dollar?

The Dow Jones index has become so popular in the world that in recent decades it has been considered the main indicator of the state of the US economy.

The dollar exchange rate against the euro correlates almost one to one with the Dow Jones index. A fall in index quotes can lead to a fall in the dollar exchange rate. But there is also an inverse relationship. A rising dollar could lead to higher prices for stocks included in the Dow Jones Industrial Average.

MOSCOW, February 6 – RIA Novosti. The main US stock indices fell by 3.8 to 4.6 percent on Monday amid concerns about rising US bond yields; the Dow Jones and S&P 500 thus erased all of their growth for 2018.

According to preliminary exchange data, the Dow Jones lost 4.6 percent, falling to 24,345.75 points, the S&P 500 lost 4.1 percent, falling to 2,648.96 points, and the Nasdaq lost 3.78 percent, falling to 6,967.53 points.

Dow Jones fell below the 25,000 point mark, falling by more than 1,500 points during trading, and by the end of the day - by 1,175 points, which is the maximum in the entire history of the index. In percentage terms, this is the largest drop since August 2011.

The economy is strong

The White House did not see any danger in the fall in stock market indices, once again calling the American economy strong.

President Donald Trump is "focused on the long-term maintenance of economic fundamentals, which remain exceptionally strong," the White House said in a statement.

The US administration believes that the decline in stock indices is a normal market fluctuation, White House spokesman Raj Shah told reporters. “The markets fluctuate, but the fundamentals of our economy are very strong and they (the markets - ed.) are moving in the right direction,” Shah said.

We are not talking about a “bursting bubble”

The collapse of the leading US industrial index Dow Jones on Monday to a historical low most likely indicates a market correction, and not a “burst of a bubble,” Scott McDonald, chief economist at Smith's Research & Gradings and senior associate expert at the American CSIS Institute, told RIA Novosti.

"Two things are happening (in the market now). There was too long growth in the securities market. There was too much positivity, many invested in stocks. And, naturally, this could not last forever. On the other hand, the economy is growing, breaking through expert forecasts. And So on Friday we note the departure of Fed Chairman Jeannette Yellen, who was very cautious, and a new guy comes (Jerome Powell), under whom there will probably be not three, but four rate hikes,” the RIA Novosti source said.

The danger of an overheated market

Janet Yellen, who completed her last day as head of the Federal Reserve last Friday, warned before leaving about the danger of an overheated market, although the current situation, in her opinion, has not yet approached this line.

"I don't want to call what we're seeing now a 'bubble,' but I would say overall asset valuations are elevated," Yellen said in an interview with PBS. Investors need to “diversify their investments,” she said.

Projected shocks to the global economy

Earlier, Saxo Bank, in its annual review “Shocking Predictions,” predicted that in 2018 the world economy will experience a wave of shocks, which may include the weakening of the independence and control of the American and Japanese central banks, the collapse of the S&P 500 stock index, political tensions in the European Union and the loss of investor interest in Bitcoin.

One of the main events of the next year, according to Saxo Bank's forecast, will be the weakening of the independence of the US Federal Reserve System.

“Historically, the degree of independence of the US Federal Reserve has been determined by the needs and policies of the federal government. In 2018, it is expected to weaken significantly as Washington plans to limit government revenues in the face of the threat of a collapse of the debt market,” the document says.

Welcome to Financial Genius! Today we will talk about the famous Dow Jones Index. I will tell you what the Dow Jones index is, what it consists of, how it is calculated, what it means, and in general, what it is for and how it can be used. This information will be useful not only to those who are engaged, but also to any person for general development and the ability to competently understand and interpret world economic news.

What is the Dow Jones Index?

So, the Dow Jones index is one of the largest, which is calculated in the USA and reflects the state of American industry.

The full name of this indicator is the Dow Jones Industrial Average. This is the first stock index invented in the United States in the second half of the 19th century by Charles Dow, the founder of Dow Jones & Company, together with the editor of the largest American publication, the Wall Street Journal, Edward Jones (by the way, this newspaper is still reviewing the companies included in the calculation of the indicator) . The Dow Jones index was first officially published in 1896, and before that, since 1884, its first version had already existed, which was not published anywhere, but was used by its authors for analytical research.

The very first published Dow Jones index was an arithmetic average of the stock prices of the 12 largest US industrial companies. By the way, it is interesting that today's Dow Jones index includes only one of these companies - General Electric.

At the beginning of the 20th century, the number of companies in the index was first increased to 16 and then to 30, where it remains today. The companies in the index were periodically rotated - new companies replaced old ones.

Dow Jones Index today: composition and meaning.

Currently, the Dow Jones Index includes the value of common shares of the 30 largest US companies in various industries. Among them there are industrial corporations, oil and gas companies, enterprises of the chemical and pharmaceutical industries, the food industry, telecommunications enterprises, a chain of catering restaurants, an entertainment industry enterprise, financial, credit, insurance companies, payment systems, etc.

The most famous companies whose shares are included in the calculation of the Dow Jones index are American Express, Boeing, Coca-Cola, Johnson & Johnson, McDonald's, Microsoft, Nike, Procter & Gamble, Visa, Walt Disney.

Shares of almost all of these companies are listed on the New York Stock Exchange NYSE, and three companies are listed on the Nasdaq exchange. Moreover, the total capitalization of the companies included in the Dow Jones index is about 15% of the capital of all companies listed on the stock exchange.

The most recent approval of the composition of the Dow Jones index was carried out on September 20, 2013.

If initially the Dow Jones index was calculated as a simple arithmetic average of the prices of all stocks included in the indicator, now the calculations have become a little more complicated, and this is a scaled average, which allows taking into account changes occurring in the internal structure of the securities taken into account. That is, the current Dow Jones index shows the average cost of shares in those shares of capital that were selected for calculation at the time the composition of the indicator was approved. Thus, the denominator of the calculation formula is constantly changing, which makes it possible to bring the Dow Jones Index as close as possible to the real structure of the American economy.

The Dow Jones Index shows how the stock prices of the 30 largest US companies change. It can be considered the main indicator of the American economy, an indicator of business activity not only in the United States, but also in the world, because the companies included in the index are widely represented throughout the world. When the Dow Jones index grows, this indicates an increase in business activity, an improvement in the investment climate, and an increase in demand for shares of American companies from investors. Investors buy stocks with the expectation that they will rise in value and provide income in the form of dividends. Accordingly, if the Dow Jones index grows, it means that company profits are predicted to grow, and, to some extent, the growth of the American and world economies. If the Dow Jones index falls, the opposite is true.

Dow Jones Index: chart and dynamics.

Now I’ll tell you a little about the dynamics of the Dow Jones index over the entire period of its existence, and I’ll dwell on the most significant points. This is what the Dow Jones index looks like over the past decades, starting in 1985:

Overall, over the long term, the Dow Jones Industrial Average has been on a consistent upward trend since its inception. The very first published value of this indicator was only 40.94, but today it exceeds 18,000 (!). Thus, over more than 100 years of its existence, the Dow Jones index has grown approximately 440 times (!), in fact, this figure can roughly be considered an increase in the capitalization of the American economy.

In 1966, the indicator broke the psychological mark of 1000 for the first time; its particularly rapid growth began in the 80s, and even more strongly in the 90s of the last century. Thus, in 1995 the 5,000 mark was surpassed, and already in 1999 – 10,000.

The largest medium-term decline in the Dow Jones index was observed in 2008-2009, when it began. Then, after the previously reached highs above 14,000, it fell below 7,000 - more than 2 times, but after that it recovered and continued its growth, which is observed to this day.

The largest daily drop in the Dow Jones index was recorded in the so-called. “Black Monday” October 19, 1987 - on this day the figure fell by 22.6%. After the terrorist attack in the United States on September 11, 2001, the Dow Jones index fell by 7.1%.

Disadvantages of the Dow Jones Index.

Despite the fact that the Dow Jones index is still considered the main indicator of the global economy, it has its drawbacks. The main one is the relatively small number of companies whose securities are included in the calculation of the indicator - there are only 30 of them. For this reason, to make more accurate conclusions, investors and analysts often look at the Dow Jones index in combination with the S&P 500 index, which includes shares of already 500 US companies.

In addition, despite changes in the methods for calculating the indicator, many consider it imperfect. For example, because when calculating the Dow Jones index, only the current value of shares is taken into account, without comparison with its original value or some basic value on a certain date, as happens when calculating some other indices. Also, the value of the indicator is more influenced by the most expensive securities included in the index, and not by all of them equally.

Application of the Dow Jones Index.

The Dow Jones Index is an indicator that is always closely monitored by investors around the world, even those who have nothing to do with the US stock market. The fact is that changes in this index have an indirect impact on the dollar exchange rate, and the dollar exchange rate, in turn, affects everything, any investment assets.

In addition, the Dow Jones index itself also acts as an exchange asset - traders around the world buy and sell it through futures contracts, making money on changes in quotes.

Now you have a basic understanding of what the Dow Jones Index is, how it is calculated and what it shows, which means you can correctly interpret economic and financial news that mentions the rise or fall of this indicator.

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