The Dow Jones is a stock market index (when people say Dow Jones they mean the Dow Jones Industrial Average, DJIA, or the Dow Jones 30) consisting of the top 30 stocks of the US markets, usually referred to as the blue chips, these 30 stocks are not static, they can be changed according to some criteria put by the index founders, the financial company Dow Jones & Company founded Charles Dow, Edward Jones, and Charles Bergstresser. Some of these criteria are the volume traded over a specific period of time, and how many stocks held by the public.
The Dow Jones components:
3M, Alcoa, American Express, AT&T, Bank of America, Boeing, Caterpillar, Chevron Corporation, Citigroup, Coca-Cola, DuPont, ExxonMobil, General Electric, General Motors, Hewlett-Packard, Home Depot, Intel, IMB, Johnson & Johnson, JPMorgan Chase, Kraft Foods, McDonald's, Merck, Microsoft, Pfizer, Procter & Gamble, United Technologies Corporation, Verizon Communications, Walmart, Walt Disney.
What is the importance of a stock index?
A stock index is a benchmark for investors to gauge the performance of a country’s equity market and the health of it’s economy, it can also be used to compare the Funds and Fund Managers performance and take a decision who to invest with.
Types of Indices
There are 2 types of indices; broad-based and specialised indices.
Broad-based indices represent the whole stock market performance and hence, the investor sentiment on the health of the economy. Examples of this type are, the Dow Jones Industrial Average, FTSE 100, CAC 40, and S&P 500.
Specialised indices represent the performance of one market sector such as the petrochemical sector or the financial sector. Examples of this type are, Morgan Stanley Biotech Index, and the Dow Jones Chemicals.
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