Dissecting the Dow Jones industrial average.The storied index remains the synonym for "the market" despite falling this year Once upon a time on Wall Street when market participants said, "The market closed up," they meant the Dow Jones industrial average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. had finished higher that day. Even in this Internet age, some Wall Street veterans still mean "the Dow" when they say "the market." It's harder to believe these days, with the blue-chip index down 2.89% year-to-date and the technology-heavy Nasdaq up 1.96% for the same period. But just what is the Dow? It's a collection of 30 stocks meant to represent key sectors of the economy. It was launched May 26,1896 by Charles H. Dow, cofounder co·found tr.v. co·found·ed, co·found·ing, co·founds To establish or found in concert with another or others. co·found of The Wall Street Journal. Then, the Dow had 12 stocks and was introduced at a time when equities had dubious reputations. Bonds were preferred by the investors of the day, because they paid interest on a regular basis and were backed by tangible assets like machinery and factory buildings. The Dow Jones industrial average contains some of the most well-known companies in America, including Coca-Cola (NYSE NYSE See: New York Stock Exchange : KO), International Business Machines (NYSE: IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) ) and Walt Disney (NYSE: DIS). In an effort to more closely mirror the current stock market, four companies were added to the average November 1, 1999: Home Depot (NYSE: HD), Intel (Nasdaq: INTC INTC Intel (NASDAQ symbol) INTC Intercept INTC Interrupt Controller ), Microsoft (Nasdaq: MSFT MSFT Microsoft (stock symbol) MSFT Movimento Sociale Fiamma Tricolore (Italy) MSFT Multi-Stage Fitness Test MSFT Master of Science in Family Therapy MSFT Macalester Students for Fair Trade ) and SBC Communications (NYSE: SBC). Dropped from the venerable bluechip average were Chevron (NYSE: CHV CHV canine herpesvirus. ), Goodyear (NYSE: GT), Sears (NYSE: S) and Union Carbide (NYSE: UK). The reason the Dow is behind other averages like the Nasdaq composite index Nasdaq Composite Index An index that indicates price movements of securities in the over-the-counter market. It includes all domestic common stocks in the Nasdaq System (approximately 5,000 stocks) and is weighted according to the market value of each listed this year. is simple: most of the Dow's component stocks like Alcoa (NYSE: AA) represent so-called "old economy" companies. These are slower-growth, cyclical businesses in industries like steel and oil whose profits are closely aligned with the economy's rise and fall. Despite a strong economy, investors are concerned with the possibility of inflation, which hurts old-line industrial companies. Recently, Federal Reserve Chairman Alan Greenspan told Congress more interest-rate hikes were in the offing, particularly since the four previous increases haven't slowed down the economy. That's not welcome news for cyclical shares. In addition to the industrials, Dow Jones & Co. compiles and maintains other averages like the Dow Jones transports, an index of airline, rail and other transportation, shares. For more information on the Dow Jones industrial average and other Dow indexes, go to http://averages.dowjones.com. |
|
|||||||||||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion