The Dow Jones Industrial Average, or simply the Dow, is a stock market index that tracks 30 large publicly traded companies in the United States. The Dow has been an important indicator of the U.S. stock market since it was first calculated in 1896 by Charles Dow, the founder of Dow Jones & Company. In this article, we will take a closer look at what stocks are included in the Dow and why they are important.
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Section 1: History of the Dow
To understand the importance of the Dow, it is helpful to have some historical context. When Charles Dow created the index, he chose 12 companies that he believed represented the major industries of the time, including railroads, steel, and tobacco. Over time, the number of companies in the index expanded to 30, and the composition of the index shifted to reflect changes in the economy and the stock market.
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Section 2: How the Dow is Calculated
The Dow is a price-weighted index, which means that the weight of each component is based on its stock price rather than its market capitalization. This is different from other popular indexes like the S&P 500, which are market-cap weighted. To calculate the value of the Dow, the stock prices of the 30 components are added together and divided by a divisor that adjusts for stock splits, dividends, and other changes.
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Section 3: What Stocks are in the Dow?
Now let’s take a closer look at the current components of the Dow. As of May 2023, the 30 companies in the Dow are:
- 3M (MMM)
- American Express (AXP)
- Amgen (AMGN)
- Apple (AAPL)
- Boeing (BA)
- Caterpillar (CAT)
- Chevron (CVX)
- Cisco Systems (CSCO)
- Coca-Cola (KO)
- Dow Inc. (DOW)
- Goldman Sachs (GS)
- Home Depot (HD)
- Honeywell (HON)
- IBM (IBM)
- Intel (INTC)
- Johnson & Johnson (JNJ)
- JPMorgan Chase (JPM)
- McDonald’s (MCD)
- Merck & Co. (MRK)
- Microsoft (MSFT)
- Nike (NKE)
- Procter & Gamble (PG)
- Salesforce.com (CRM)
- The Travelers Companies (TRV)
- UnitedHealth Group (UNH)
- Verizon Communications (VZ)
- Visa (V)
- Walgreens Boots Alliance (WBA)
- Walmart (WMT)
- Walt Disney (DIS)
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Section 4: Importance of the Dow
The Dow is an important indicator of the health of the U.S. stock market because it reflects the performance of 30 large and well-established companies across various industries. Many investors use the Dow as a benchmark for their own portfolios and to gauge the overall direction of the market. Additionally, the Dow is often cited in the media as a barometer of economic conditions in the U.S.
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Section 5: Criticisms of the Dow
Despite its importance, the Dow has been criticized for its narrow focus on just 30 companies and its price-weighted methodology. Some argue that this makes the index less representative of the broader stock market and more susceptible to volatility caused by changes in the stock prices of individual components. Additionally, the Dow’s focus on large, established companies may not reflect the growth potential of smaller, more dynamic companies that are not included in the index.
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Conclusion:
In conclusion, the Dow Jones Industrial Average is a key indicator of the U.S. stock market that tracks 30 large publicly traded companies across various industries. While the index has been criticized for its narrow focus and price-weighted methodology, it remains an important benchmark for investors and a widely watched gauge of economic conditions in the United States.
