What Is the Dow Jones (DJIA)?
The Dow Jones Industrial Average (DJIA), sometimes referred to as the Dow or Dow 30, is a stock market index that tracks the performance of 30 large, publicly traded companies in the United States. Created in 1896, it is the oldest continuous barometer of the U.S. stock market, and one of the most widely quoted indicators of the stock market’s overall health. The DJIA takes the weighted average of the stock prices of the 30 component companies.
What are Dow Jones Futures?
Dow Jones futures allow investors to hedge with or speculate on the future value of various components of DIJA, or the direction of the stock market as a whole. The value of futures is determined by existing contracts that speculative investors have for trades, which have set prices and dates. These existing contracts help see what the DJIA may be worth in the coming days or weeks.
What is the Average Return of the Dow Jones?
The average return for the Dow Jones is 8.70% from its beginning in 1988 through March 2022.
What Is the Dow Theory?
The Dow theory trading strategy is primarily based on ideas about stock price movement from Charles H. Dow, dating back to the 19th century. The theory mainly states that multiple indices should provide the same signal to confirm a trend in stock price movements. This theory is the core principle of modern technical analysis in investing.
The Dow theory predicts the market is in an upward trend if one of its averages advances above a previous high, accompanied by a similar advance in another corresponding average.
For example, if both the DJIA and the DJTA (Dow Jones Transportation Average) are seeing an upward trend, then the stock market is in a bull market, and if the DJIA and DJTA are both seeing a downward trend, the stock market is in a bear market. If the DJIA and DJTA are seeing upward trends and volume is increasing, this further confirms the stock market is likely in a confident bull market, however if the volume is decreasing while the dows are seeing upward trends, this is an indication that the bull market may reverse.
Why Is the Dow Jones Industrial Average Important?
The Dow Jones Industrial Average is an important indicator of the stock market’s performance, the overall health of the US economy, and the trust investors have in the market. The DJIA is used as a reference point for index funds and ETFs that tend to reflect the performance of the Dow.
Dow Jones vs. S&P 500
Both the Dow Jones and the S&P 500 track stock prices of many different companies which gives us an idea of the wellbeing of the entire stock market in general. The DJIA tracks 30 companies covering about 10 business sectors, and the S&P 500 tracks 500 companies of a much more diverse range of business sectors. The S&P 500 weighs the 500 stocks based on market capitalization, whereas the DJIA determines the weight of a stock using the stock price.