The Dow Jones Industrial Average (known as Dow Jonesor sometimes Dow or US30) is one of the most famous stock exchange indexes in the world and the most famous stock index of the New York Stock Exchange, which monitors the trend of the 30 largest US companies listed on Wall Street. In fact, an indicator of the economic health of the USA is considered more generally. The index takes its name from its two creators: the founder of Wall Street Journal Charles Dow and the financial statistics Edward Jones.
In these days you are talking very much following the announcements of Donald Trump on the entry into force (and the subsequent behind the duties, which have moved the world bags. This stock exchange index is particularly sensitive to the duties imposed by the Trump Administration because these could do increase costs for companiesbringing investors to fear that profits can drop, with the consequent sale of the actions, including those present inside the Dow Jones.
How the Dow Jones works and what companies make up
To understand in a simple way what Dow Jones is, we can imagine this stock exchange index as a sort of classification which represents the 30 most important companies listed on the New York Stock Exchange, including well -known names such as Apple, Coca-Cola, McDonald’s, Microsoft, Nike, 3m, American Express, Boeing.
Dow Jones is an index Price-Weighted: means that each company has a different weight within the index based on price of its action. If an action costs a lot, it will have a great influence in the value of the index, and vice versa if it costs little it will influence the index less.
The companies that are part of it are chosen by the drafting of the Wall Street Journalwhich selects those who work permanently in America and who consider important and leader in their sector. In addition, the composition of the index rarely changes: any changes take place only in case of important events such as mergers, acquisitions or if a company loses relevance.
Like Trump’s duties influence the Dow Jones
In this last period there was a lot of talk about Trump’s decisions on dutiesthat is, those taxes applied to products imported from other countries. These decisions have moved the world bags, including the American one with particular incidence in the Dow Jones index, but why?
All companies, including those present in the Dow Jones, sell and buy products from all over the world. If companies were incurred extra costs (the duties, in this case) to buy something from another country, and therefore found themselves having to pay more to buy that object (between purchase and taxes), a Increase in costs which would entail two possibilities: o reduce margins (and therefore have less useful to be distributed also to shareholders), or raise the prices to the customer Final, however, risking that customers buy less (and here too, risking having fewer profits).
Being faced with this “risk”, those who have invested in these companies, for fear that these can earn less in the future, begin to sell the actions. And when many people sell actionsThe value of those companies drops and therefore theindex drops. This is what happened to the world indices and also to the Dow Jones.
It is important to remember, however, that the world indices have always and forever and forever do so, even if there are periods – like this – in which these movements are more sudden, with a more or less steep climb/descent.
