What is the Dow Jones

Dow Jones is a stock market index. It was founded by editor of Wall Street Journal Charles Dow. It came into being in 1896 and is now owned by Dow Jones Indexes. It is an indicator of the stock market activity. It is the second oldest market index of US.

The Dow Jones Industrial Index along with Transportation Index and Utility Average represent a group of select premierUScompanies. To get entry into the Dow index, company has to demonstrate sustained growth and is of great interest to the investors. Dow recently introduced Global Dow, Asia Dow and Europe Dow. Each of these represents companies that are big enough to represent sector included in that index.

The components of Dow Industrial Index change as per the performance. The good reputation of companies is exhibited by the fact that they manage to remain in the index for years. Whenever any change occurs, the scale of Dow Industrial Index is adjusted accordingly. This scale variation is demonstrated in the form of change in pricing of stocks and subsequent change in price of the commodity manufactured by that company. General Electric is the longest surviving company on Dow Index till date.

Dow Jones composite average which is composed of both transportation and utility average represents 50 plus companies. The Dow Jones Average is further differentiated into High Yield Select 10 Index also. The activity in this Index is powerful enough to affect the activity of whole index as it represents top 10 Highest Yielding companies.

Dow Jones Index data is used for research and analysis involved in the introduction of various products to attract the investors’ interest. Indexes form the basis of various exchange traded funds and other portfolio products like underlying securities, mutual funds etc. Investment pattern in these products is determined by detailed study of the indexes resulting into probable profit guaranteed by the schemes revolving these products. For example, decisions like which fund should be kept closed ended and inclusion of diversified sectors in a particular fund are based on the research involving Index Performance.

Dow Jones Index has seen significant highs and lows since its inception. News making lowering of index in 1896, popularly known as Panic of 1896 and its subsequent effect on economy well-establishes the importance of activity of this index. Effect on the activity of index is mostly the aftermath of natural disasters that hit the country. Events like 1906San Franciscoearthquake or the onset of World War I coincide with the poor performance of the index. Such massive change causing effects are always dreaded by the investors. But at the same time, investments made during such times where index touches all-times lows prove to be a money-minting step in long run.

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