What is the Dow Jones Industrial Average (DJIA)?

Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is a stock market index, one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. The DJIA now comprises the 30 most important stocks which are traded on the New York Stock Exchange. Among these stocks are companies such as Exxon, Microsoft and Disney. Currently owned by S&P Dow Jones Indices, it is the most notable of the Dow Averages. The averages are named after Dow and one of his business associates, statistician Edward Jones. It is the second oldest U.S. market index after the Dow Jones Transportation Average, which was also created by Dow.

Together with the NASDAQ Composite, the S&P 500 Index and the Russell 2000 Index, the Dow Jones is among the most closely watched U.S. benchmark indices, tracking targeted stock market activity. For years the Dow was the benchmark for how the stock market and the economy was faring and although the S&P 500 is now used as the benchmark index, the Dow still remains the most followed index around the world.

Unlike the S&P 500, the value of the Dow is not the actual average of the prices of its component stocks, but rather the sum of the component prices divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index.

Of the three American indices, the Dow Jones is the one that mirrors the American economic and trading sentiment and is closely tied to manufacturing and employment data, especially the US Non-Farm Payrolls, Gross Domestic Product (GDP) and consumer sentiment reports. Employment data can impact on the markets to a large extent. Whenever the Non-Farm Payrolls report and US employment rate data disappoint, the Dow Jones is usually sold off hard. Manufacturing data is a measure of employment which will ultimately affect consumer spending. This is due to the fact that increased manufacturing is a sign that the economy is picking up, will lead to more jobs, and more money in people’s pockets. Consumer sentiment is a measure of how consumers view the state of the economy. Consumers spend more when the economy is good and they have jobs and more disposable income. These are all factors that affect the decisions of investors as to whether to hold on to their stocks or to sell them off, and this is what affects the Dow Jones index.

You can thus implement an investment strategy by identifying the factors that lead to investors selling off their stock holdings resulting in a drop in the price of the Dow Jones index asset. If you wish to trade indices in the binary option market, you can do so with Banc De Binary whereby the Dow Jones index can offer many opportunities for excellent returns.