Why Should You Follow the Dow Jones Industrial Average Every Day? An In-Depth Guide for Investors

The History and Evolution of the U.S. Major Indexes

The Dow Jones Industrial Average (DJIA) is not just a number indicator but a vital dimension reflecting the goings-on— or the lack thereof— of the global economy. Since July 3, 1884, when it was calculated from just 12 companies’ stocks, this index has developed into the most influential benchmark, with 59 changes in its constituent companies, calculation formula, and selection criteria over time.

Global stock markets often start the new day by looking at the closing results after the New York market, because the Dow Jones index is not only a measure of the U.S. economy but also a barometer of investor confidence worldwide.

What is the Dow Jones Index? And Why Does It Influence Global Markets?

The Dow Jones Industrial Average (DJIA) refers to a number calculated from the stock prices of 30 leading U.S. companies, industry leaders in technology, finance, health, energy, and retail. These companies have extensive global business networks, generate international trade revenue, and maintain transparent financial data.

The Wall Street Journal and Dow Jones & Company select these companies using strict criteria, considering not only market value but also earnings, financial stability, dividend payout ratios, and growth potential.

The importance of this index manifests on two levels:

National level: The Dow Jones reflects the health of the U.S. economy through employment, investment, earnings of major corporations, and consumer spending trends.

Global level: When the NYSE closes on a positive note, the following morning, markets in America and Asia tend to move in tandem. This reflects the flow of international capital; movements in the index influence investment decisions of pension funds and hedge funds worldwide.

Factors Affecting Changes in the Dow Jones Index

Not every day the index rises or falls without reason. Economic data and Federal Reserve announcements are primary drivers.

U.S. Economic Data

Key figures are closely monitored:

• Unemployment rate: If fewer people are unemployed, the economy is strong, consumers spend more, and companies sell more goods.
• Consumer Price Index (CPI): If inflation spikes, the Fed may decide to raise interest rates, increasing borrowing costs.
• GDP and retail sales: These figures indicate whether the economy is growing or slowing down.
• Industrial orders: If companies are ordering more, it shows confidence in the future.

USD Exchange Rate

When the dollar strengthens, U.S. exporters suffer because foreign buyers pay more. Conversely, a weaker dollar makes exports cheaper, attracting more interest in the Dow Jones.

Interest Rate Movements

Whenever the Federal Reserve announces a rate hike, the stock market reacts. If the Fed raises rates, borrowing costs for companies and individuals increase, reducing investment incentives. Conversely, if the Fed cuts rates, borrowing becomes cheaper, boosting investments.

Characteristics of Companies Included in the Dow Jones

Not every company makes it into the 30-company list. The selection is highly stringent; companies must:

• Be large: Market cap in the hundreds of billions of dollars.
• Have strong performance: Profitable, stable, not on the brink of bankruptcy.
• Be industry leaders: High market share and influence.
• Have liquidity: Sufficient trading volume.
• Be U.S.-based: Listed on NYSE or NASDAQ.

Since 1896, 59 changes have occurred, reflecting economic shifts. When General Motors and Citigroup dropped out, Apple and Salesforce entered. Currently, Amazon and NVIDIA replace Walgreens and Intel.

How the Dow Jones Price Is Calculated: The Method

The unique feature of the Dow Jones is its price-weighted calculation, unlike most indices that are market-cap weighted.

Formula: DJIA = Sum of the 30 companies’ stock prices ÷ Divisor

As of early 2025, the Divisor is 0.1474 (down from 0.152 in 2020), adjusted for stock splits, dividends, or component changes.

Example: Goldman Sachs at $574 has a greater influence on the index than Apple at $253, despite Apple’s higher market cap. Verizon at $40 has minimal influence even as a major telecom giant.

This characteristic is seen as a weakness but remains a historical standard trusted by investors.

List and Proportions of Companies in the Index as of Early 2025

These top 10 companies account for over 84% of the index weight, meaning movements in Apple, Microsoft, NVIDIA impact the index more than Coca-Cola or Nike.

(Source: stockanalysis.com December 2024)

Historical Highlights: Key Events That Changed the Index

Trend Analysis: Why Is the Market Moving Up?

Post-2009 Financial Crisis Recovery (2015)

The Federal Reserve’s low-interest and Quantitative Easing policies led the Dow Jones to generate 185% returns over five years. Money flowed in, stock prices soared, and investors became interested in new investments.

Trump Era and Tax Reforms (2016-2018)

Corporate tax cuts from 35% to 21% and deregulation allowed companies to retain more earnings. The Dow rose 48% in two years despite tense trade wars.

COVID-19 Crisis and V-Shape Recovery (2020)

A rapid plunge of -38.6% was followed by trillions in economic stimulus and vaccine checks, leading to a 76.8% rebound in less than a year.

Inflation Era and Adjustment (2022-2024)

The Fed raised interest rates to combat inflation, causing market volatility and investor fatigue. When the Fed began lowering rates in 2024, the Dow rebounded strongly, surpassing 40,000 points and reaching 45,073.

What Will 2025 Bring? Dow Jones Outlook

Analysts forecast the Dow Jones in 2025 to range between 38,000 and 44,000 points, with an upward trend:

• January 2025: around 41,749 points
• June 2025: possibly reaching 47,646 points
• December 2025: estimated peak at 53,644 points

Supporting factors:

• Strong corporate profits: Major companies still hold high cash reserves.
• Interest rates may continue to fall: The Fed might keep lowering rates.
• Large market leaders: Apple, Microsoft, NVIDIA remain dominant.
• Investment cycle: Since late 2023, the market has risen for 18-24 months and may continue upward.

Despite some volatility, the overall direction remains positive.

(Source: Longforecast.com)

How to Invest in the Dow Jones Index?

Option 1: Futures (Futures)

Dow Jones futures are derivatives directly linked to the index, suitable for experienced investors willing to invest large amounts. High fees and leverage increase risk.

Option 2: CFDs (Contract for Difference)

CFDs are more suitable for retail investors, requiring lower initial capital. Leverage can range from 10x to 100x, and trading is available via smartphones and desktops. Many brokers offer free demo accounts with $50,000 virtual funds.

Caution: High leverage entails high risk. Choose regulated brokers with good track records.

Summary: Why Follow Daily Movements?

The Dow Jones Industrial Average (DJIA) is not just a number on a screen but a bridge connecting U.S. investor confidence with global markets. Its movements reflect:

• U.S. economic health via employment, GDP, inflation data
• Fed’s monetary policy affecting global capital costs
• Investor sentiment and international capital flows
• Technological and industrial trends transforming the economy

Stock markets are highly volatile; investing requires thorough research, risk management, and strategic adjustments. This article is a guide for understanding, not an investment solicitation. Manage risks wisely and invest intelligently.