Question: What Are the Dow Jones Averages?
Answer: The Dow Jones Averages are stock market indices that represent the U.S. economy in three sectors: industry, transportation and utilities. The editors of The Wall Street Journal select companies which they feel best represent all companies within these three sectors. The three Dow Jones indices are:
- The Dow Jones Industrial Average (DJIA), which tracks the share price of 30 companies which best represent their industries. The market capitalization of these stocks account for nearly one quarter of the total U.S. market. It is the most quoted market indicator in the world.
- The Dow Jones Utility Average, which tracks 15 utility stocks. Since utility companies are big borrowers, their profits are enhanced by low interest rates. Therefore, the Utility Average declines when investors are expecting increases in interest rates, making it a leading indicator.
- The Dow Jones Transportation Average, which tracks airline, trucking and shipping companies. It is a lagging indicator, which means it can be used to confirm the trend set by the Dow Jones Industrial Average. This is because transportation companies can only make their profits after the product has been manufactured and is available to ship. If the DJIA increases, but the Transportation Average doesn't, then that may mean that demand has fallen for those companies' products, and they aren't being shipped.
