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Dow Jones: Meaning, composition, history

The Dow Jones is a US stock index that has its origins back in 1884. At that time, the Dow Jones was created by the editor of the Wall Street Journal - Charles Dow. It was Dow who established the Dow Theory, which is still valid today. Originally, the Dow Jones Industrial Average - the long form of the index - was intended to measure the development of the stock market in the USA. Until today, the Dow Jones has a high relevance and is therefore also very interesting for you as a trader when trading with shares. 30 of the largest US companies are listed in the Dow Jones, so that the index also has a high informative value.

The Dow Jones is calculated in different versions. You can check all versions in all Exness trading terminals. Check exness login and then dowload desired terminal to use it. In addition to the well-known and most commonly used price index, there is also a performance index of the Dow Jones. In this case, dividend payments also play a role and are taken into account in the index. In the following you will learn how the Dow Jones is calculated and what relevance it can have for you as a trader when trading with shares. Basically, you can learn a lot about the Dow Jones index and deal comprehensively with this topic. However, there is also the S&P 500, which can also be interesting for you as a trader. 

Overview of the Dow Jones Industrial Average

Initially, there were eleven stocks in the Dow Jones Average in 1884. This Dow Jones Average is the ancestor of today's Dow Jones Index and at that time offered an overview of nine railway companies and two industrial companies. The railway companies in particular were of great importance in the USA at that time, while industrial companies were viewed more speculatively. For this reason, it is all too understandable why so many railway companies were listed in Charles Dow's Dow Jones Average. In 1885, the index was expanded to 14 companies, and the following year it consisted of only 12 companies.

At the end of the 19th century, there were major upheavals in the US economy and a large number of industrial companies emerged. This was caused by takeovers. The Dow Jones Index was therefore created by Charles Dow as the Dow Jones Industrial Average. Initially, it comprised twelve stocks, which were first published in the Wall Street Journal in 1896. Particularly interesting: of the twelve initial stocks, only one company, General Electric, is still in the Dow Jones today. Moreover, there was an interruption from 1898 to 1907.

The Dow Jones in the 20th Century

The severe banking crisis at the beginning of the 20th century did not spare the Dow Jones. Above all, the collapse in the price of railway shares caused heavy losses in the index. Within one year, the index lost almost 38 percent of its value. There was a four-month break in the stock market due to the First World War in 1914, after which the Dow Jones Index was able to record a gain again. In 1916, the index was restructured and 20 companies were listed. The price was then calculated back to 1914, which resulted in larger price losses.

Since October 1928, the Dow Jones Index has been filled with 30 stocks. No adjustment had to be made, as a new divisor was used for the calculation. The index thus remained at a constant level. The world economic crisis followed at the end of the 1920s, triggered by Black Thursday or Black Friday. The Dow Jones lost a large part of its value here and ultimately closed almost 90 percent below its peak value at the time. In 1987, the Dow Jones Index again lost a great deal of its value; this day is still known today as Black Monday. The loss in value of the index was more than 25 percent.


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