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Latest Articles
The Dow Jones Industrial Average
I'm sure you have heard from news anchors or stock market analysts that the market went up by 50 points or the market was down by 50 points. You may wonder what they are talking about and brush it aside as may be another one of those unnecessary or meaningless banters. Well, I've got news for you, their not. They actually mean something.
The DJIA
A person called Charles Dow once created various averages to determine how the overall stock market is doing. It was a long time ago, back when railroads were the fad. That is why it was first called the Dow Jones Transportation Average. Over the years the railroad became old and hence they changed the name of this stock market indicator to the present Dow Jones Industrial Average (DJIA). You may be wondering how this kind of average can tell the overall status of the stock market. Let me explain.
The DJIA, presently run by the Dow Jones Company, examines the behavior of 30 stocks that have been considered ‘blue chip' or those stocks that are considered of high quality. These stocks have endured market growths and recesses and one is almost guaranteed that these stocks will be around for fifty more years. Much like in a survey where not all of the people are asked but a sample is taken to represent all of the population; the same thing is used in DJIA. They get 30 stocks that are from different sectors and industries to represent the whole market and evaluate how these stocks perform, therefore making the conclusion of how the whole market generally performs. They include those involved in technology, industrial and financial sector, as well as consumer cyclical or non-cyclical industries. Those industries that prosper and grow more when the economy is in boom are called cyclical whereas those whose growth does not depend on the rise and fall of economies are called non-cyclical.
Blue Chip Stocks
The corporations that represent the technology sector are the Microsoft, IBM, Hewlett and Packard, and Intel. They are those that are directly involved in technology. Other corporations that are also under these categories are those of AT&T and Verizon, companies involved in telecommunication. The technology sector is said to be counter cyclical as they are most in the rise right before recession in the economy.
The Industrial sector is represented by General Motors, Honeywell, Boeing, United Technologies, Du Pont, 3M, Caterpillar and Alcoa. These corporations generally do well when the economy does well. Stock representatives from the financial sector include American Express, American International Group, Citigroup and JP Morgan Chase. They are also cyclical stocks.
Consumer cyclical industries are those that we are most familiar with which includes McDonalds, Disney, Home Depot as well as Wal-Mart. They are cyclical because consumers tend to buy more when the economy is in boom, which means more money to spend. Consumer non-cyclical includes stocks from Pfizer, Johnson & Johnson as well as Merck, which are all pharmaceutical corporations. Corporations such as Procter & Gamble, Coca-cola, and Altria, owner of the popular cigarette brand Phillip Morris, are also under this category. They are non-cyclical because consumers still buy medicine, consumer products and addictive products such as soft drinks and cigarette, even when the economy is in trouble. General Electric and Exxon do not fit any of the five categories because they are different. General Electric is a conglomerate, involved in many businesses and Exxon is an oil company that is counter-cyclical.
Analysis of all of these stocks and their behavior in the stock market produces the general idea of whether the market is up or down by how many points.
The DJIA
A person called Charles Dow once created various averages to determine how the overall stock market is doing. It was a long time ago, back when railroads were the fad. That is why it was first called the Dow Jones Transportation Average. Over the years the railroad became old and hence they changed the name of this stock market indicator to the present Dow Jones Industrial Average (DJIA). You may be wondering how this kind of average can tell the overall status of the stock market. Let me explain.
The DJIA, presently run by the Dow Jones Company, examines the behavior of 30 stocks that have been considered ‘blue chip' or those stocks that are considered of high quality. These stocks have endured market growths and recesses and one is almost guaranteed that these stocks will be around for fifty more years. Much like in a survey where not all of the people are asked but a sample is taken to represent all of the population; the same thing is used in DJIA. They get 30 stocks that are from different sectors and industries to represent the whole market and evaluate how these stocks perform, therefore making the conclusion of how the whole market generally performs. They include those involved in technology, industrial and financial sector, as well as consumer cyclical or non-cyclical industries. Those industries that prosper and grow more when the economy is in boom are called cyclical whereas those whose growth does not depend on the rise and fall of economies are called non-cyclical.
Blue Chip Stocks
The corporations that represent the technology sector are the Microsoft, IBM, Hewlett and Packard, and Intel. They are those that are directly involved in technology. Other corporations that are also under these categories are those of AT&T and Verizon, companies involved in telecommunication. The technology sector is said to be counter cyclical as they are most in the rise right before recession in the economy.
The Industrial sector is represented by General Motors, Honeywell, Boeing, United Technologies, Du Pont, 3M, Caterpillar and Alcoa. These corporations generally do well when the economy does well. Stock representatives from the financial sector include American Express, American International Group, Citigroup and JP Morgan Chase. They are also cyclical stocks.
Consumer cyclical industries are those that we are most familiar with which includes McDonalds, Disney, Home Depot as well as Wal-Mart. They are cyclical because consumers tend to buy more when the economy is in boom, which means more money to spend. Consumer non-cyclical includes stocks from Pfizer, Johnson & Johnson as well as Merck, which are all pharmaceutical corporations. Corporations such as Procter & Gamble, Coca-cola, and Altria, owner of the popular cigarette brand Phillip Morris, are also under this category. They are non-cyclical because consumers still buy medicine, consumer products and addictive products such as soft drinks and cigarette, even when the economy is in trouble. General Electric and Exxon do not fit any of the five categories because they are different. General Electric is a conglomerate, involved in many businesses and Exxon is an oil company that is counter-cyclical.
Analysis of all of these stocks and their behavior in the stock market produces the general idea of whether the market is up or down by how many points.
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