Dow Jones Industrial Average
A price-weighted stock market index tracking 30 large, publicly-owned US companies, one of the oldest and most widely cited market indicators.
Example
“When the Dow Jones fell 1,000 points in a day, news headlines declared the worst drop in years.”
Memory Tip
DOW = 30 big US companies tracked by price. The oldest and most famous market index.
Why It Matters
The Dow Jones Industrial Average serves as a barometer for the overall health of the US economy and stock market. When you hear news about the markets, the Dow is often the first index mentioned, making it essential for understanding economic trends that affect your investments, retirement accounts, and consumer confidence.
Common Misconception
Many people believe the Dow tracks all stocks or the entire US stock market, but it only includes 30 large companies. This means movements in the Dow may not reflect what is happening with smaller companies or other sectors, and it can give an incomplete picture of overall market performance.
In Practice
If you own a diversified portfolio with companies like Apple, Microsoft, and McDonaldus (all Dow components), a significant drop in these stocks could cause the Dow to fall 500 points in a day. However, your portfolio might hold other stocks not in the Dow that actually gained value, demonstrating why tracking only the Dow could mislead you about your actual investment performance.
Etymology
Named after Charles Dow and Edward Jones, who created it in 1896. Originally tracked industrial companies.
Common Misspellings
Track markets & get real-time stock data
Related Terms
More in markets
Other markets terms you should know
See Also
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