The Dow is comprised of 30 blue-chip stocks traded on NYSE and Nasdaq. It attempts to track the country's economy. Let's look at seven exciting stats about it.
1. USA30 is just the second oldest index, contrary to what many people say.
Dow Jones Industrial Average is the second oldest index in the world. It was created two years after the Dow Jones Transportation Average, founded by Charles Dow (the same one who created Dow Jones Industrial Average) on July 3rd, 1884. The Dow Jones Transportation Average encompassed nine transportation companies and two industrials at the time of its appearance.
Dow Jones Industrial average was created on May 26th 1896 and only had 12 components at that time.
2. Some well-established journalists came up with the idea.
As part of their thorough research into market developments and analysis, journalists Charles Dow and Edward Jones, alongside Charles Bergstresser, founded USA30. Interestingly enough, both Bergstresser and Dow worked at The Wall Street Journal, which was and still is one of the most respected financial newspapers in the entire world. From its introduction back in 1896, much has changed concerning Dow Jones Industrial Average.
3. It is not an average anymore…
In the beginning, Charles Dow used an averaging system during the first years of the DJIA. However, that changed when the index components rose to 30 in the late 1920s. So, the Dow Divisor was born and has been in place ever since.
This is calculated by adding the stock prices of the 30 components and dividing the result by this divisor, which is updated periodically. The reason is simple: this number prevents any change, whether that's a change in components, a stock split or something else, from having any effect on the Dow Jones Industrial Average.
4. …and that makes it a price-weighted index.
Everything about the Dow Divisor and how it is calculated makes USA30 a price-weighted index, different from other U.S. indices. While most other financial indices weight by market capitalization, the Dow Jones components are weighted in accordance with their prices. To put it simply, the more expensive stocks included in the index have a more significant influence than the less expensive ones.
5. The Dow as a whole is so much more than industrial stocks.
If we look at the Dow Jones Composite Average, we will see more than one industry. The Dow Jones Composite Average encompasses the Dow 30 plus the 20 stocks in the Dow Jones Transportation Average and the 15 utility stocks in the Dow's average for that industry. That's a whopping 65 stocks, giving considerable weight to the transportation and utility sectors too. However, it has generally tracked the Industrials fairly closely in recent years.
As a fun fact, General Electric was the only stock left out of the Dow's 12 original members until 2018, when it too got booted out.
6. The most significant one-day gains and one-day losses for USA30 are pretty impressive.
According to investopedia.com, the most significant one-day percentage gain in the index happened during the 1930s bear market, totalling 15.34%. The Dow gained 8.26 points and closed at 62.10 in March 1933.
On the other hand, the most significant one-day percentage drop occurred on Black Monday, the huge stock market crash from October 1987. The index fell 22.61%. Well, that day proved to be one of the worst in recent history for more than just the Dow…
7. The index could expand even further.
S&P Dow Indices, the world's leading resource for benchmarks and investable indices, has a group known as the Averages Committee in charge of establishing the methodology for the Dow. This Average Committee has taken into account more than once, boosting stocks from 30 to something like 50. However, so far, it has not reached a decision surrounding this topic. Nevertheless, such moves are possible in the future, considering that other important indices have undergone massive changes, such as expanding their list of members.
Investors often look to gain exposure in U.S stocks to make the most out of their portfolios and their trading performance. And USA30 stocks offer a viable chance to gain from the growth of the America-based companies and the country's robust economic strength.
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Sources: nasdaq.com, fool.com, investopedia.com.
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