Dow Jones Industrial Average (DJIA)
Quick Definition
A price-weighted index of 30 large U.S. blue-chip stocks, one of the oldest and most-watched market benchmarks.
Key Takeaways
- The DJIA tracks 30 major U.S. blue-chip companies and is price-weighted, not cap-weighted.
- Higher-priced stocks have more influence on the index than lower-priced ones.
- While widely quoted, the S&P 500 is a broader representation of the U.S. stock market.
What Is Dow Jones Industrial Average (DJIA)?
The Dow Jones Industrial Average (DJIA), often called "the Dow," is a stock market index that tracks 30 prominent U.S. companies across various industries (excluding transportation and utilities, which have their own Dow indices). Created by Charles Dow in 1896, it is one of the oldest continuously published market indicators. Unlike the S&P 500, which is market-cap weighted, the DJIA is price-weighted—stocks with higher share prices have more influence on the index, regardless of total market capitalization. This means a $1 move in a $300 stock like UnitedHealth affects the Dow more than a $1 move in a $50 stock. The Dow Divisor—a constantly adjusted number—converts the sum of component prices into the index level, accounting for stock splits and substitutions. While the Dow is widely quoted in media, many professionals prefer the S&P 500 as a broader market gauge since the Dow only covers 30 stocks.
Dow Jones Industrial Average (DJIA) Example
- 1The Dow crossed 40,000 for the first time in May 2024, driven by gains in UnitedHealth, Goldman Sachs, and Microsoft.
- 2Because the Dow is price-weighted, a 2% rise in UnitedHealth ($300+ stock) moves the index more than a 2% rise in Verizon ($40 stock).
Related Terms
NASDAQ
The National Association of Securities Dealers Automated Quotations — the second-largest stock exchange globally, known for its concentration of technology and growth companies.
Market Index
A statistical measure tracking the performance of a group of stocks representing a market or sector.
Stock
A security representing ownership in a corporation, entitling the holder to a share of profits and voting rights.
Initial Public Offering (IPO)
The first sale of a company's stock to the public, transitioning it from private to publicly traded.
S&P 500
A market-capitalization-weighted index tracking 500 of the largest U.S. publicly traded companies, widely considered the best single gauge of the American stock market.
Price-to-Earnings Ratio (P/E)
A valuation metric comparing a company's stock price to its earnings per share, indicating how much investors pay per dollar of earnings.
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