The Dow Jones Industrial Average (^DJI) is a price-weighted index that tracks 30 large, public companies trading on the New York Stock Exchange and the Nasdaq.The Dow is supposed to be representative of the overall market and the largest sectors of U.S. economy.
Yahoo Finance's Ines Ferré explains what the Dow is, how it's calculated, and the most expensive stocks on the index (UNH. HD, GS)
Key Video Moments
00:00:15 Companies in the Dow
00:00:45 What the Dow is
00:00:50 Most expensive stocks in the Dow
00:01:05 How the Dow is calculated
00:01:18 Dow Divisor
Video Transcript
INES FERRE: We are constantly talking about the Dow Jones Industrial Average. Investors are constantly being reminded of this average. It's like a barometer. It's like a snapshot of the stock market. But what exactly is it? The Dow is composed of 30 American companies, and it's supposed to be representative of the overall market and most of the big sectors of the economy.
Taking a look at the Dow components, you can see it includes some technology stocks. You've got Apple. Microsoft is in there. You have some financial stocks, like JP Morgan, Goldman Sachs. You've got health care stocks like UnitedHealth Group, Boeing, an industrial stock. And then some consumer facing stocks as well, like Procter & Gamble, Coca-Cola, McDonald's, Walmart is in there.
Now, the Dow is a price weighted index. A company's weight on the index is determined by the stock price. So UnitedHealth Group has the highest stock price among the components. Goldman Sachs is the second highest, followed by Home Depot. So when those stocks move up or down, they have a bigger impact on the overall point index movement.
Now, the Dow, though, isn't technically an average. To get an average, you need to add up all the share prices and divide that by 30. But keep in mind, companies do stock splits and have dividends. So nowadays, the sum of the stock prices is divided by what's called a Dow divisor. And it's a number which changes frequently, and it takes into account stock splits and dividends. Fun fact-- no stock has been in the average for the entire lifespan of the Dow. The components change over the years as the economy changes. The Dow Jones Industrial Average is more than 125 years old.
DAVE BRIGGS: Excellent breakdown, Ines Ferre. Thanks so much. Enjoy the weekend.
INES FERRE: You, too.
