The Dow Jones Industrial Average
October 25th, 2008 | by admin |
The Dow Jones Industrial Average is one of the most important economic indexes in the world and has been that since its inception in 1896. This index is especially important not only because of its age and heritage, but also because of the fact that it is easily one of the most highly recognizable financial indicators in both the United States and around the world. When economic pundits on television talk about “The Dow”, they are usually referring to the Dow Jones Industrial Average, even though there are other market indexes named after Charles Dow. The fact that it holds this place in the economic nomenclature makes it something worth understanding.
The Dow Jones Industrial Average is indicated by a very large number and many observers (both casual and involved) base their opinion of the direction of the economy on what this number does. If the average heads up, then it is said that the markets are up. If it is down, like it has been in the last few months, then many fear for the future of the American economy. With this in mind, it could be said that the Dow Jones Industrial Average is simply a well-publicized indicator of economic fortunes.
What does this average include? These days, it is a composite of 30 of the world’s largest companies. There are no small names that get their say in contributing to the average. Each of the companies is widely held and it is well known to pretty much everyone around the world. In the past, these companies represented the crust of American society and its dedication to growing industry. Today, the name associated with the average is not much more than a name. There are few companies in the composite that deal with big industry, as most are more technology based in the wake of the changing global economy.
Many individuals fail to understand the Dow Jones Industrial Average on the basis of its actual value. Though it is meant to directly represent how the largest stocks in America are doing, it is not an exact representation of the value of those stocks. It is what is known as a weighted index, meaning that the numbers are based upon a different scale. For the everyday investor, this means that the actual value of the index is higher than the actual sum value of the stocks that this includes.
This has been one of the most important things in American economic history over the last 100 years. Each and every time the United States has fallen into a depression or some sort of economic recession, the Dow Jones Industrial Average has been there to indicate and warn America of the coming collapse. Its importance really extends beyond that, as well. It not only serves as an indicator, but it also has a fair amount of influence on the markets around the world. When America’s economy gets into trouble and the Dow Jones Industrial Average starts heading downwards, global markets have a way of following. Typically, these global markets do not take very long to respond to any drastic changes in the Dow. The flip side of that is also true, as global markets respond very favorably to any drastic improvements in this index.
Those who are worried about their finances and the future of the economy should keep a steady eye on the Dow Jones Industrial Average when making their investments. Though it is a somewhat simplistic measure of how the American economy is doing, it is a very important one. The Dow does not lie, so to speak, and any changes over the long haul in this index are usually a good sign of things to come in regards to the American economy.