American Stock Exchange, Dow Jones

The Dow Jones is perhaps the most important stock index of the NYSE, the New York Stock Exchange. It is a basket of American stocks named after Charles Dow, who at the same time is the father of technical analysis and if that were not enough also founder of the Wall Street Journal. For these reasons, in addition to being the main index of the New York Stock Exchange, the Dow Jones is also among the most famous in the world.

The characteristic of this index is to weigh the price of the 30 major shares of Wall Street. This is a big difference compared to other indices that instead consider the capitalization and therefore the relative weight of the companies they include. This characteristic has created a lot of discussions with the passage of time because reducing the entire list of American stocks, composed of several hundred stocks, to only 30, is very reductive. This therefore seems not to reflect the performance of the entire list of the American Stock Exchange.

In any case, the Dow Jones in 2020 reached new highs, even exceeding the long-awaited 18,000. This occurred during a particularly positive economic situation in which the US saw its economy grow at a high rate, with +5% in the third quarter of 2019 and progress still underway for 2020. The annual increase in 2019 marked a 7.5% or “Chinese” level, although China did better this time as well. 2019 and therefore also the Dow Jones were marked by the collapse of the price of oil, mainly due to the U.S., which increased production by bringing the level of crude oil supply very high and forcing markets to review prices. This contributed to the fall of the euro (importing countries) and thus to the lowering of the eur/usd exchange rate (and other exchange rates with importing countries) which led to a greater difficulty than US exports to the world. The Dow Jones has recently fallen again below 18,000.

List of Dow Jones Shares

The companies that make up the Dow Jones stock index are not fixed and can be replaced with something else depending on market conditions and the decisions of the publishers of The Wall Street Journal, which as we have said was founded by the very founder of the index. The change of shares within it also produces changes for the calculation of the index, which we will see in the next paragraph.

As of April 2, 2020 the companies that make up the Dow Jones are:

  • 3M Co;
  • American Express Co;
  • Apple Inc;
  • Boeing Co/The;
  • Caterpillar Inc;
  • Chevron Corp;
  • Cisco Systems Inc;
  • Coca-Cola Co/The;
  • EI du Pont de Nemours & Co.
  • Exxon Mobil Corp;
  • General Electric Co;
  • Goldman Sachs Group Inc/The;
  • Home Depot Inc/The;
  • Intel Corp;
  • International Business Machines Corp;
  • JPMorgan Chase & Co;
  • Johnson & Johnson;
  • McDonald’s Corp;
  • Merck & Co Inc;
  • Microsoft Corp;
  • NIKE Inc;
  • Pfizer Inc;
  • Procter & Gamble Co/The;
  • Travelers Cos Inc/The;
  • United Technologies Corp;
  • UnitedHealth Group Inc;
  • Verizon Communications Inc;
  • Visa Inc;
  • Wal-Mart Stores Inc;
  • Walt Disney Co/The.

As you can see, there are some very well known stocks that are destined to remain in this index but there are also others less well known by most and that could be replaced by other companies if they were considered more appropriate to this index. These are really important stocks, so much so that Apple only made its entry on March 19, 2020. In this regard, let’s see how the DIJA, the Dow Jones, is calculated.

How the Dow Jones is calculated

The calculation of the Dow Jones requires you to add up all the prices of the 30 stocks in the index and divide this sum by the “Dow divider”. This divider is a variable that is adjusted to take into account capital increases, mergers, demergers and other events that may affect the value of the index. Therefore, the inclusion of different shares also affects the divider because it brings with it other data to be evaluated.

DIJA = Stock Price sum/Divisor Dow

At the beginning, when the index was created, the divider was simply 30, or the number of shares. Basically, a simple average. Today, however, this value is much lower, and is even less than 1. This makes the value of the index greater than the sum of its components.

To calculate the DJIA, the sum of all prices of the 30 shares is divided by a special divider (Dow divider). The divider is adjusted to take account of changes in share composition, capital increases, demergers, mergers, etc… so as to ensure that such events do not alter the value of the index. In the beginning, the divider was simply the number of member companies, but the current value, after numerous adjustments, is even lower than 1 (which means that the index value is currently higher than the sum of the components).

Recent History of the Dow Jones

After the crises before the 2000 .com bubble and the 2008/2009 recession, the Dow Jones has slowly started to grow again.

During the first part of 2010, helped also by the quantitative easing adopted by the FED (Federal Reserve), the Dow Jones stock exchange index made its first attempts at a rally, beginning to have “reckless” rises but always accompanied by a high degree of volatility. These rallies and this volatility were due to global concerns as they progressively blurred the recovery every time they blossomed. For example, the European sovereign debt crisis, the Dubai debt crisis, and the US debt ceiling crisis. Just think that on 6 May 2010 the Dow Jones index, which was already losing 400 points, lost another 600 points in a few minutes, reaching an intraday of 998.50 points down (9.2%). That event was called “Flash Crash”.

On May 3, 2013, the Dow Jones closed over 15,000 and in November of the same year it closed over 16,000. A quota of 17,000 was reached in 2019 following a very favourable employment report. Historical, is the date of December 23, 2019 when the Dow Jones even exceeded 18,000 quota. The end of the year 2019 saw the Dow Jones still below, to then reach a new high on March 2, 2020, at 18,288.63.

In 2019, there was a 71% gain in the five-year period. Those who believed in the Dow Jones have been amply repaid.

How To Profit From The Dow Jones

Today you can bet on the Dow Jones and produce economic results in several ways including online trading.

For quieter and more traditional trading there are CFDs on indices and in this specific case CFDs on the Dow Jones. With these instruments you can profit in proportion to changes in the price of the index and long or short positions can be kept open as long as you wish. You can also close them during the day. The largest provider of CFDs is Plus500, which allows you to practice with a free demo platform. Please note that in addition to profits you can also record losses, always linked to market trends.

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