Understanding Equities - Question 73

What is the Dow Jones Average? I hear it mentioned on evening news and I don’t understand it.

The Dow Jones Average is an index of 65 stocks. These 65 stocks, (30 of which are in the industrial category) are large companies such as General Electric, Coca Cola, AT&T, General Motors, DuPont, and Merck. 20 transportation stocks and 15 utility stocks are also included - for a total of 65 stocks.

The Dow Jones Industrial Average is the only price weighted index commonly reported. This means that movements of higher-priced stock affect this average more.

The 15-stock index of the Dow Jones Utilities will give you additional insight because utilities need to borrow more heavily than to finance their capital-intensive operations. That's why this index is such an effective barometer of interest rates.