The Dow Jones Industrial Average (DJIA) is the oldest and best-known stock market index. It measures the daily price movements of 30 large American companies. It is widely viewed as a proxy for general market conditions.
Started in 1896, the DJIA is comprised of 30 North American blue-chip stocks, approximately two-thirds of which are represented by companies producing industrial and consumer goods. The rest are chosen from every single the major sectors of the economy including information technology, entertainment, and financial services. As of December 2016, the top constituents of the DJIA include Apple Inc. (AAPL), Microsoft Corporation (MSFT), Johnson & Johnson (JNJ), and others.
The DJIA is a price-weighted index, which means that the sum of the component stock prices is divided by a divisor. Instead of dividing by the number of stocks in the average, as is done in an arithmetic average, the Dow divisor is used for this index. The purpose of this divisor, which is continually adjusted, is to smooth out the effects of stock splits and dividends. The result is that the DJIA is affected only by changes in the stock prices, so stocks with a higher share price hold a larger impact on the Dow’s movements.
For example, whether the DJIA rose by 50 points, it means that the cost of purchasing the 30 stocks in the index was $50 higher than the cost of purchasing those same 30 stocks yesterday, taking into account stock splits and dividends. In other words, those stocks are more valuable nowadays than they were the preceding day. Over time, the DJIA can be used as a benchmark for the economy.
procure comfortable with this significant market index – Read Why The Dow things, How Now, Dow? What Moves the DJIA?, and Understanding and Playing the Dow Jones Industrial Average.