Dow Jones Industrial Average (DJI) Index: History, Composition, and Impact on Financial Markets
Introduction: The Dow Jones Industrial Average, also known as DJI or simply “Dow Jones,” is one of the most well-known and widely used stock market indexes in the United States. In this article, we will explore its history, composition, and impact on financial markets.
The history of the DJI index dates back to 1896 when American financier Charles Dow, along with the newspaper “The Wall Street Journal,” created this index. It was intended to serve as an indicator of the state of the American economy and stock market. Initially, the index consisted of 12 major industrial companies, including General Electric, American Tobacco Company, and United States Rubber Company. Over time, the composition of the index has changed and expanded, reflecting changes in the economy and composition of the industrial sectors in the United States.
1. History:
- The DJI was created in 1896 by American financier Charles Dow and “The Wall Street Journal.” Since then, it has come a long way and has become one of the most significant financial indexes in the world. Significant moments in the history of the index include the crash of 1929, the era of the Great Depression, wars, and various economic crises.
- Initially, the index consisted of 12 major industrial companies, including General Electric, American Tobacco Company, and United States Rubber Company.
- Over time, the composition of the index has changed, reflecting changes in the economy and composition of the industrial sectors in the United States.
- Today, the DJI includes 30 of the largest and most significant companies in the United States.
2. Composition of the DJI:
Companies included in the DJI index are selected based on certain criteria. They must be large, well-known, and have high liquidity of their stocks in the market. The weightings of companies in the DJI index are determined by their market capitalization.
Composition of the Dow Jones Industrial Average as of mid-2023:
| Company | Market Capitalization | Sector |
|---|---|---|
| Apple Inc. | $2.999 trillion | Electronic technology |
| Microsoft Corporation | $2.567 trillion | Technology |
| Visa Inc. | $498.479 billion | Commercial services |
| UnitedHealth Group Incorporated | $447.054 billion | Healthcare |
| JP Morgan Chase & Co. | $437.671 billion | Finance |
| Walmart Inc. | $416.474 billion | Retail trade |
| Johnson & Johnson | $415.46 billion | Medical technology |
| Procter & Gamble Company (The) | $353.663 billion | Fast-moving consumer goods |
| Home Depot, Inc. (The) | $318.202 billion | Retail trade |
| Chevron Corporation | $287.11 billion | Energy and mineral resources |
| Merck & Company, Inc. | $272.368 billion | Medical technology |
| Coca-Cola Company (The) | $263.367 billion | Fast-moving consumer goods |
| Salesforce, Inc. | $223.367 billion | Technology |
| McDonald’s Corporation | $215.334 billion | Consumer services |
| Cisco Systems, Inc. | $205.301 billion | Technology |
| Nike, Inc. | $165.929 billion | Fast-moving consumer goods |
| Walt Disney Company (The) | $161.936 billion | Consumer services |
| Verizon Communications Inc. | $142.978 billion | Telecommunications |
| Intel Corporation | $138.269 billion | Electronic technology |
| Honeywell International Inc. | $137.223 billion | Electronic technology |
| Caterpillar, Inc. | $131.735 billion | Industrial manufacturing |
| American Express Company | $128.87 billion | Finance |
| Boeing Company (The) | $128.212 billion | Electronic technology |
| Amgen Inc. | $121.522 billion | Medical technology |
| International Business Machines Corporation | $121.133 billion | Technology |
| Goldman Sachs Group, Inc. (The) | $108.441 billion | Finance |
| 3M Company | $56.436 billion | Industrial manufacturing |
| The Travelers Companies, Inc. | $38.331 billion | Finance |
| Dow Inc. | $205.629 million | Manufacturing industry |
| Walgreens Boots Alliance, Inc. | $25.207 billion | Medical technology |
3. Calculation methodology:
Changes in the calculation methodology of the DJI index: Throughout its history, the DJI index has undergone several changes in its calculation methodology. For example, in 1928, the number of companies included in the index was increased to 30. In 1976, a system of company weights based on their market capitalization was introduced.
- The DJI index is calculated by summing the common stocks of all the companies included in the index and dividing this sum by a special coefficient called the Dow Jones divisor. The Dow Jones divisor is regularly adjusted to account for stock splits, mergers, and other corporate events.
- Changes in the DJI index reflect changes in the stock prices of the companies included in the index. The DJI index represents the average value of the stocks of the 30 largest and most representative companies in the United States. It is calculated as the weighted average of the stock prices of these companies.
4. Impact on financial markets:
- The DJI index is an important indicator of the state of the American stock market and the economy as a whole. Changes in the DJI can have a significant impact on investor sentiment and the decisions they make.
- The DJI is also used as an underlying asset for creating financial products such as futures and funds, allowing investors to earn returns from changes in the index.
Conclusion: The Dow Jones Industrial Average index is an important tool for analyzing and forecasting financial markets. Its history, composition, and calculation methodology make it a reliable and widely used indicator of economic activity in the United States. Changes in the DJI can have a significant impact on investors and financial markets as a whole.
