Presentation of the Dow Jones and its characteristics:
Many people recognise the name Dow Jones without really knowing what it represents. It is actually the name of a stock market index representing the American economy. Its complete name is the ‘Dow Jones Industrial Average’ which is also known as the ‘DJA’ which has in turn become simply called the Dow Jones.
The Dow Jones is the first index that was quoted on the New York Stock Exchange. It is also the oldest international stock exchange index. It is the company Dow Jones Indexes that is responsible for its quotation, part of the CME group. But the name Dow Jones may remind you of something, or someone else, as it is named after the famous analyst, Charles Henry Dow, who among other things formulated the Dow Theory upon which technical analysis is based.
Please note, the Dow Jones upon which you have the opportunity of trading online is actually a sub-category composed of only 30 companies and which is therefore named the Dow Jones 30 or DJ30.
How is the Dow Jones quotation calculated?
Here we will focus particularly on the composition and the quotation of the Dow Jones 30 Index or DJ30, which can be traded online through various platforms. In a logical manner, the DJ30 represents the economic activity of the 30 major American companies that are the most profitable and representative of the American industrial sector.
There are also many notably renowned international companies among them such as Intel and Coca-Cola.
Companies quoted by the Dow Jones:
As indicated by the abbreviation DJ30 which can be seen on the trading platforms and various communications, the Dow Jones reflects and comprises the activities of the 30 largest and most representative of the industrial sector of the United States. Here can be found prestigious companies such as Coca Cola, Intel and Walt Disney.
It is interesting to note that the calculation of this index differs somewhat from other international indices. In fact, like the NIKKEI, it is one of the few indices that are calculated according to the value of the shares that it comprises rather than the share capital of the concerned companies. This particularity is actually considered to be a fault in this American Index which has kept to the same quotation system since its inception over 120 years ago.
It is for this reason that the Dow Jones is no longer considered as the index of reference relative to the American market. This honour is now held by the S&P 500.
The History of the Dow Jones prices:
Since its creation in 1884, the Dow Jones Index has of course experienced highs and lows and it would be well nigh impossible here to resume its major trends in just a few lines. However it should be noted that following a number of years where it rose successively this index lost over 50% of its value in the crash of 1929.
Its highest historical record was at a level of 14,000 points which was attained in July 2007 before the global financial crisis created a downturn in its value.
The composition of the Dow Jones Index classified by activity sector:
As we examined earlier in the presentation of this stock market index, the Dow Jones Industrial Average aims to represent, as reliably as possible, the economic situation of the United States. To do so it is composed of the largest American companies selected from different activity sectors. Knowing the relative size of each of these activity sectors in this index can therefore be advantageous from a number of aspects. Here therefore is the current distribution of this index, sector by sector:
- The largest sector represented in the Dow Jones Index is the industrial sector with a total of 21.14% of this index.
- We then find the services sector which represents 16.18% of the total of this stock market Index.
- The technology sector which includes information technologies represents 15.40% of this stock market Index.
- The health sector represents around 11.63% of the composition of the Dow Jones Index.
- The financial sector is also well represented with an 11.35% share of the total Index.
- We also find the gas and crude oil sector with a total share of 10.75% of the composition of this Index.
- The consumer goods sector represents around 6.03% of the composition of the Dow Jones Index.
- Then we have the telecommunications sector with a total weight of 4.42%.
- Finally, the last activity sector represented in the composition of the Dow Jones Index is that of basic materials with a 3.11% percentage.
Of course, the composition of this Index and its activity sector distribution changes over time and depends greatly on movements in the American economy.
What are the highest stock market capitalisations represented in the Dow Jones Index?
Although many of the shares that feature in the composition of the Dow Jones are accessible online using CFDs it can be useful to know the major featured companies in terms of stock market capitalisation. Here therefore are the companies with the greatest stock market capitalisation that are included in this stock market index:
- The Microsoft Company is at the head of the highest capitalisations in this index with a total stock market capital of 806.62 billion dollars.
- In second position we find the Apple Company with a stock market capital of 739.27 billion dollars.
- The third place is taken by the Johnson & Johnson Company with a stock market capital of 345.95 billion dollars.
- J P Morgan Chase holds fourth position in terms of stock market capitalisation in the Dow Jones with a total of 340.29 billion dollars.
- In fifth position lies the ExxonMobil Company that boasts a stock market share capital of 301.62 billion dollars.
- Then we have the Walmart Group in sixth position with a stock market capital of nearly 281.98 billion dollars.
- The seventh place in this classification is currently occupied by the United Health Group with a stock market capitalisation of 256.64 billion dollars.
- The Visa Inc. Group holds eighth position in this classification with a stock market capital of 238.97 billion dollars.
- Then we find the Procter & Gamble Group that holds ninth position with a stock market capital of 233.95 billion dollars.
- Finally, in tenth position we find the Pfizer Group which boasts a stock market capitalisation of 228.50 billion dollars.
What have been the strongest historical variations of the Dow Jones index rate since its creation:
You surely realise that the historical data of a stock market index rate such as the Dow Jones is important to analyse to be able to effectively anticipate all its future trends. Here therefore are some important dates with the historical high and low records achieved by the rate of the Dow Jones.
Let us commence with the record rises achieved by the Dow Jones and more specifically the strongest rising movements ever recorded. The strongest daily rises ever achieved by this asset in a single session occurred on the 15 March 1933 with a rise of 15.34%, on the 6 October 1931 a rise of 14.87% occurred, and a rise of 12.34% in a single session was recorded on the 30 October 1929.
Concerning the years that experienced record rises in this stock market index rate, we particularly note the historical record of 1975 with a gain in points of 38.32%. We can also note the rise of 33.45% in 1995 and that in 1985 of 27.66%.
Let us now examine the sessions in which this index rate fell the most. The largest recorded drop in the Dow Jones occurred on the 19 October 1987 with a loss of 22.61%. We can also note the 28 October 1929 with a fall of 12.82% and the next day, the 29 October 1929, with a fall of 11.73%.
The most negative years relating to the Dow Jones index rate are notably 2008 with a record drop of 33.84% as well as 1977 with a drop of 17.27% and 2002 with a fall of 16.76%.
As you can confirm there are great differences between the record highs and lows of this index.
Some precautions before trading the Dow Jones:
Whether you have decided to speculate on the Dow Jones you should be able to identify strong rising or falling movements in advance. Given that this index is fairly representative of the American economy, you should take into account the fundamental data concerning the United States that you can find on the economic calendar.
However it is also important to complete full technical analyses alongside as this index reacts strongly to support and resistance levels.
To successfully trade on the Dow Jones you simply need to follow the economical events in the United States. Here are the points to watch:
- The commercial balance of the United States.
- The general economic policy of the country.
- The American GDP.
- The statistics concerning the industrial production.
- The export levels.
- The value of the American Dollar.