For my final blog post, I will be wrapping up my market analysis with the overall market indicator for the United States. The Dow Jones Industrial Average (DJIA) is a stock market index that is compromised of 30 publicly owned stocks that are traded on the New York Stock Exchange. The DJIA has been used to reference the direction of the US market since 1896. It is seen as great prestige if a company is added to the DJIA and only a select few ever make it. The DJIA is compromised of several different sectors of the US economy such as consumer goods and services, energy, financial services, hardware, health care, industrial materials, media, software, and telecommunications. This helps to balance out differently preforming sectors to give a more accurate representation of how the general market is doing. The DJIA does have its downsides to market measurement. For example, the DJIA is calculated by taking the literal price of each of its 30 stock components and dividing the total by a common divisor. This causes more expensive stocks to have a much higher weight than lower priced stocks.
(Sectors of the DJIA)
As many readers are most likely aware, COVID-19 hit the US markets extremely hard. The common measurement used on several major news networks is the DJIA. The DJIA was very close to an all time high in February at just above 29000 points. Almost all aspects of the market were thriving and humming along at the time. During the worst part of COVID-19 for the markets in March and April, the DJIA crashed from 29000 to 18000 points, eliminating all of the gains of the DJIA since President Trump had been in office at one point.
(One year Chart, notice the dip in March and April and the quick recovery)
Since the initial recession, the DJIA has come roaring back from its low point in March to present day. In fact, just this Monday, November 9th, the DJIA neared an all time high once again closing above 29000 points. The sectors that were hit the most in the DJIA such as consumer goods and services and energy were picked up by technology, health care, and software companies. The DJIA is once again at an uncertain point with the recently elected presidential candidate Joe Biden set to take office in January and COVID-19 cases also nearing all time highs. Time will only tell how the DJIA preforms in the future as the US is entering unprecedented circumstances once again through this winter and spring with COVID-19 and the potential vaccine.
I think one of the most interesting things that I have learned about the stock market while reading your blog posts, is that the stock market is always fluctuating. There can be periods of time where it’s at an all-time high, but then moments later it can decline to half of that value. Though the decline can be detrimental, there eventually will be another increase, leading the stock market to yet again be at a high. One thing that I never realized about the stock market was that the DJIA was comprised of only the most exclusive and elite publically owned stocks. I guess that it must be an honor and good for a company’s reputation if they ever get added to the DJIA. I also think that Covid is a bigger force than we ever imagined it to be, and it was not until all of the deaths and the toll it took on the stock market for us to understand the extremity of the pandemic.
I have always heard references to the Dow Jones Industrial Average, but I was never really sure exactly what it was. Thanks for explaining! I find it interesting how it is used as an overall indicator of the market by being an average of different successful companies all on completely different sectors. While I might not know anything about any specific stocks without this blog, I will at least be a little bit more informed about the trends of the stock market now that I am equipped with this information. Thank you!
One question I had while reading was that if the DJIA members are picked based on similar standards to something like the Fortune 500 list or really any sort of large mutual fund. I assume the DIJA would be more selective due to it’s importance, but It would be interesting to look at the different selection criteria.