WHAT IS AN INDEX?

• It is a statistical means of calculating change in

a market or economy
• It is simply a weighted average representative
of a sample market
• Changes in an index are calculated from a
base value
• There are numerous indices that cover a
broad range of markets and sectors within
those markets
 DJIA

COMPONENTS CONSTRUCTION CREATOR

• 30 large public • Price Weighted • Charles Dow in

companies Average 1896
based in US
 COMPONENTS
• As the economy changes over time, so does
the composition of the index. The Dow
typically makes changes when a company
experiences financial distress and becomes
less representative of the economy, or when a
broader economic shift occurs and a change
needs to be made to reflect it.
 CHANGES TO THE COMPONENTS
• When the index launched, it included just 12 companies that
were almost purely industrial in nature.
• The first components operated in railroads, cotton, gas, sugar,
1896 tobacco and oil.

• The index grew to 30 components

1928

• eight stocks within the Dow were replaced. However, during

this change, the Coca-Cola Company and Procter & Gamble
1932 Co. were added to the index
CHANGES TO THE COMPONENTS
• Walgreens Boots Alliance, Inc. replaced General Electric
Company.
2018
 COMPANY YEAR ADDED
3M* (NYSE:MMM) 1976
American Express (NYSE:AXP) 1982
Apple (NASDAQ:AAPL) 2015
Boeing (NYSE:BA) 1987
Caterpillar (NYSE:CAT) 1991
Chevron* (NYSE:CVX) 2008
Cisco (NASDAQ:CSCO) 2009
Coca-Cola* (NYSE:KO) 1987

The Walt Disney Company (NYSE:DIS) 1991

DowDuPont (NYSE:DWDP) 2017

ExxonMobil* (NYSE:XOM) 1928
General Electric (NYSE:GE) 1907
Goldman Sachs (NYSE:GS) 2013
The Home Depot (NYSE:HD) 1999
IBM (NYSE:IBM) 1979
Intel (NASDAQ:INTC) 1999
Johnson & Johnson* (NYSE:JNJ) 1997
JPMorgan Chase (NYSE:JPM) 1991
McDonald's* (NYSE:MCD) 1985
Merck (NYSE:MRK) 1979
Microsoft (NASDAQ:MSFT) 1999
Nike (NYSE:NKE) 2013
Pfizer (NYSE:PFE) 2004
Procter & Gamble* (NYSE:PG) 1932
Travelers Companies, Inc. (NYSE:TRV) 2009

United Technologies (NYSE:UTX) 1939

UnitedHealth (NYSE:UNH) 2012

Verizon (NYSE:VZ) 2004
Visa (NYSE:V) 2013
Wal-Mart (NYSE:WMT) 1997
 CONSTRUCTION OF DJIA
• The Dow is a price-weighted index.
• stocks with higher share pricesare given a greater
weight in the index.
• To calculate the DJIA, the sum of the prices of all 30
stocks is divided by a divisor, the Dow Divisor.
• The divisor is adjusted in case of stock splits, spinoffs or
similar structural changes, to ensure that such events
do not in themselves alter the numerical value of the
DJIA.
• That is:
DJIA= ∑P/d
 MILESTONES

Mar. 15, • The largest one-day percentage gain in the

index happened during the 1930s bear
market totaling 15.34 percent. The Dow
1933 gained 8.26 points and closed at 62.10.

Oct. 19, • The largest one-day percentage drop took

place on Black Monday. The index fell
1987 22.61 percent.

• The fourth-largest one-day point drop — and

Sept. 17, the largest at the time — took place the first
day of trading following the 9/11 attacks in
2001 New York City. The Dow dropped 684.81
points or about 7.1 percent.
 MILESTONES

May 3, • The Dow surpassed the 15,000 mark for

the first time in history.
2013

Jan. 26, • The index hit its current record of

26,616.71.
2018
10 YEAR GROWTH CHART
 INTERPRETATION
• The index is influenced by not only corporate and
economic reports, but also by domestic and
foreign political events such as war and terrorism,
as well as by natural disasters that could
potentially lead to economic harm.
• The correlation between the components of the
index and the movement of the index is higher in
a time period where the average recedes and
goes down. The correlation is lowest in a time
when the average is flat or rises a modest
amount.