Stock Market Updates: Overview of Indicators
In the world of finance, few names carry as much weight as Dow Jones. The brainchild of Charles Dow, a 29-year-old journalist, who established the Dow Jones Financial News Bureau in New York in 1880, Dow Jones & Company has since become a cornerstone of the financial industry.
In 1884, the Dow Jones Average was born as a single number capturing a day's trading activity and identifying market trends. The first Dow Jones Index included 9 or 10 railroads, one steamship line, and the telegraph company Western Union. This index, known as the Dow Jones Transportation Average, was the first stock index, focusing on the transportation sector.
As time passed, adjustments were made to the membership of the Dow Jones Index due to mergers, acquisitions, bankruptcies, stock splits, and changes in the fortunes of the companies. The Transportation Average grew to 20 stocks and was renamed the Dow Jones Transportation Average. In 1896, a new index, the Dow Jones Industrial Average, was created, including industrial companies. The Transportation Average remained separate and was never renamed to the Industrial Average. Thus, the Industrial Average and Transportation Average are distinct indexes with different original company sets.
The Dow Jones Industrial Average, over the years, has become more prominent in the public eye. It is a price-weighted index, meaning stocks with higher share prices have a greater weight in the index. In contrast, the Standard & Poor's "Composite Index," introduced in 1923, is a value-weighted index based on market capitalization, such as the S&P 500, which covers 500 of the world's largest companies.
There are indexes that use more complex weighting methods, such as fundamentally based indexes, which try to incorporate economic fundamental factors to better reflect corporate valuations. A third index, the Dow Jones Utilities Average, has 15 members.
Scott Gurvey, a former New York Bureau Chief and Senior Correspondent for public television's Nightly Business Report, and currently a writer for various online sites, teacher of journalism, and advisor to companies and nonprofits on media relations and communications strategy, will discuss new investment vehicles and strategies related to these indexes in his next post. You can find his blog, "Public Offering," at http://blog.scottgurvey.com, and he can be found on Twitter at @scottgurvey.
Remember, the Dow Jones Average, S&P 500, and Dow Jones Utilities Average are just a few of the many financial tools available to investors. Understanding these tools and their underlying mechanisms can help you make informed decisions about your investments. Stay tuned for more insights from Scott Gurvey.
