What makes up the djia

The DJIA is a price-weighted index , which means stocks with higher share prices are given greater weight in the index. Instead of dividing by the number of stocks in the average, as is done in an arithmetic average, the sum of the component stock prices is divided by a special divisor. The purpose of this Dow divisor , which is continually adjusted, is to smooth out the effects of stock splits, dividends paid, or corporate spinoffs; this allows for a consistent index, keeping the Dow from getting distorted by one-time events.

The result is the DJIA is affected only by changes in the stock prices, and stocks with a higher share price have a larger impact on the Dow's movements. The DJIA is simply a reflection of the weighted average of the stock prices and can be considered a price in itself. Overall, a rise in the Dow signifies a rise in the share prices of constituent companies that reflect a positive outlook and vice versa.

Over time, the DJIA can be used as a benchmark for the economy. The second-largest decline occurred on Mar. Not surprisingly, these drops coincided with times of financial instability in the United States. But remember, a rise in the index may be because of a substantial rise in share prices of a single company that is able to outweigh the fall in share prices of a few of the other stocks. So even if you are holding shares of a constituent company, a rise in the Dow may not necessarily be indicative of the share price of the company you're invested in moving up.

The Dow indicates the average trend of all 30 stocks together; the direction depends on which side is stronger—a rise in share prices or a fall in share prices. The Library of Congress. Stock Markets. Investing Essentials. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads.

Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Over time, there have been additions and subtractions to the index, such as mergers and stock splits that had to be accounted for. At this point, a simple mean calculation no longer made sense. The Dow Divisor was created to address the simple average issue. The divisor is a predetermined constant that is used to determine the effect of a one-point move in any of the approximately 30 stocks that comprise the Dow.

There have been instances when the divisor needed to be changed so that the value of the Dow stayed consistent. The Dow Divisor as of October was 0. Rather, it reflects the sum of the price of one share of stock for all the components, divided by the divisor. Thus, a one-point move in any of the component stocks will move the index by an identical number of points.

The Dow is often re-evaluated to replace companies that no longer meet the listing criteria with those that do. By , the index had grown to 30 components. Its composition has changed many times since then. The first change came just three months after the 30 component index was launched.

In its first few years until roughly the Great Depression , there were numerous changes to its components. The first large-scale change was in when eight stocks in the Dow were replaced. The most recent large-scale change to the composition of the Dow prior to took place in On Aug.

The following are some important historical milestones achieved by the Dow:. Many critics of the Dow argue that it does not significantly represent the state of the U. They believe the number of companies is too small and it neglects companies of different sizes. Furthermore, critics believe that factoring only the price of a stock in the calculation does not accurately reflect a company, as much as considering a company's market cap would.

In this manner, a company with a higher stock price but a smaller market cap would have more weight than a company with a smaller stock price but a larger market cap, which would poorly reflect the true size of a company.

Corporate Finance Institute. Accessed Oct. Associated Press. Library of Congress. US Markets. Stock Markets. To be considered as a Dow 30 stock, a company must meet the following criteria: Must be incorporated and headquartered in the US Derive a plurality of revenues from the US Help make the Dow representative of the overall US economy less transportation and utilities Attract a large number of investors Demonstrate sustained growth Have an excellent reputation.

Dow 30 List Description: The following table includes all of the current Dow 30 stocks. The Dow 30 list includes and can be sorted on: company name, market cap, dividend yield, stock price, stock price percent change for the current trading day.

For comparison purposes, the Dow Jones Industrial Average is included.