The Dow Index

By: Anne Durrell

The Dow Index is commonly referred to as the Dow Jones Industrial Average or just the Dow. It is a way to track the performance of the stock market and was actually started back on May 26, 1896 and the actual components of the index are changed from time to time as situations warrant and it is the second oldest market index in the United States behind the Dow Jones Transportation Average.

The Dow Index average is made up of the largest public companies in the United States, thirty of them to be exact. They compromise the most widely held public companies to date. The "industrial" part of the name actually has absolutely nothing to do with the heavy industry as one might expect but is more of a historically significant name.

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One might expect that the Dow Index as an average would be just that an average of the process of the various stocks. It is, however an average that is weighted by price, which allows for it to compensate for the effects of things in the market such as adjustments like stock splits. The average is calculated and adjusted whenever one of the component companies has a stock split or some form of stock dividend.

Typically the Dow Index average is figured with a divisor number that is less than one, which means that the sum of the individual component pieces is going to be somewhat less than the actual value of the index.

To many people the Dow Index is a true indicator of the state of the economy in the United States of America and since it has the pulse of the major corporations figured into it, it is a fairly good way to get a feel for consumer confidence in the over all scheme of things in this country.

While some companies do better than the ones on the Dow Index and some do considerably worse. This is an average and a cross section of what is traditionally the heartbeat of the country. It is thought by some economists that if the Dow is good the country is in pretty good shape but as it starts to fall it is a good indication that there are problems ahead.

One complaint that many people have about the Dow Index system is that not all of the companies on the index open for business at the same time so they feel that the averaging might be a little unfair and slightly skewed so the opening numbers cannot be used to evaluate the condition of the market and that the true state of the index is not there until all of the component companies are open for business on any given day.

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Dow Index

dow indexes

The Dow Index

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