US30

The Dow Jones Industrial Average, or DJIA, is one of the oldest stock indexes in the world. It is also one of the three major stock indexes of the United States, complementing the S&P 500 broad market index and the Nasdaq index. The DJIA was created by Charles Dow and was first published on May 26, 1896. It is a blue-chip index that is mostly made-up of industrial companies and also houses large cap companies from other sectors. The index features 30 prominent companies that are all listed on the U.S. stock exchanges.
The index has some specific features:
- Although its name includes the “Industrial” it is not only comprised of industrial companies. Apple Inc., American Express, Boeing, Caterpillar, Chevron, Coca Cola Company, Johnson & Johnson, McDonald's Corporation, Microsoft Corp, Nike, Procter & Gamble, Visa Inc, and Walt Disney are on the index list;
- Each company has a significant share in the index. So, any news about a particular company may have a significant impact on the DJIA performance. Investors should watch for earning statements, major new products announcements, management issues, etc.;
- The index does not represent the U.S. economy as much as the S&P 500 index but, overall, it provides an understanding of economic developments in the United States. Thus, incoming macroeconomic data, including GDP, retail sales, employment, housing market data, and business and consumer activity indicators have an effect on the index. This data has a lasting effect on the index performance;
- DJIA is extremely sensitive to the Federal Reserve’s (Fed) monetary actions. Rising interest rates and lower money supply has a negative effect on corporate sales and margins. Hawkish monetary policies push the index down. Dovish monetary policies have the opposite effect and pushes the index up. Thus, the Fed’s decisions, official statements, and rhetoric should be monitored;
- The impact of inflation figures largely depends on the scale of inflation. If the Consumer Price Index (CPI) or the Personal Consumption Expenditure (PCE) index is significantly above the 2% target, this is negative for the index as it would likely lead the Fed to tighten its monetary policy. Lower inflation rates are positive for business and the index as it stimulates demand;
- DJIA is a risky asset, and is vulnerable to risk appetite and investors’ sentiment. Rising risk appetite, economic perspectives, and positive sentiment all support the index. Political uncertainties, geopolitical tensions, and recession fears place negative pressure on the index. The appetite for risk can be tracked by looking at the CBOE Volatility Index (VIX) that has negative correlation with the index, and also at the S&P 500 index performance, which has a direct correlation with the DJIA;
- The index is a diversified asset and is suitable for conservative and long-term investors. It has lower volatility compared to currencies, energies, and individual stocks;
- The index is linked to the American stock market’s opening hours, but futures and CFD trading on the index continue mostly throughout a 24/5 basis, excluding weekends. So, the index may open with a gap if something very important has happened over a weekend.