There are 30 Dow Jones stocks designed to serve as a bellwether for the general U.S. stock market.
Founded in 1896 with 12 stocks, the Dow Jones Industrial Average is one of the oldest stock market indexes and one of the most popular. It is designed to serve as a bellwether for the general U.S. stock market and an indictor of the overall U.S. economy. It is widely-recognized stock market indices. It measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy.
The index changes when one or more components experience financial distress that renders it a less important company in its sector when there is a significant shift in the economy that needs to be reflected in the composition.
Recent changes that occurred include:
- March 2015, Apple replaced AT&T
- September 2017, DowDuPont replaced DuPont. (Following the merger of Dow Chemical Company and DuPont)
- July 2018, Wallgreens Boots Alliance Replaced General Electric
Other major stock indexes include the technology-heavy Nasdaq composite and the S&P 500 index — an index of the 500 largest companies in the United States.
The stock market historically performs similarly to the business cycle of the economy. A bear market (prices decrease 20% or more) occurs during a recession and a bull market (prices increase) during an expansion.
Business Cycle Phases.
The business cycle is the natural rise and fall of economic growth that occurs over time. The business cycle goes through four major phases: expansion, peak, contraction, and trough. The cycle is a useful tool for analyzing the economy.
References: