Dow Jones Industrial Average

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Bull market of 2009–present

Towards the latter half of 2009, the average rallied towards the 10,000 level amid optimism that the Late-2000s (decade) Recession, the United States Housing Bubble and the Global Financial Crisis of 2008–2009, were easing and possibly coming to an end. For the decade, the Dow saw a rather substantial pullback for a negative return from the 11,497 level to 10,428, a loss of a little over 9%.

The DJIA from January 2000 through February 2015.

During the early part of the 2010s, aided somewhat by the loose monetary policy practiced by the Federal Reserve, the Dow made a notable rally attempt, though with significant volatility due to growing global concerns such as the 2010 European sovereign debt crisis, the Dubai debt crisis, and the United States debt ceiling crisis. On May 6, 2010, the index lost around 400 points over the day, then just after 2:30 pm EDT, it lost about 600 points in just a few minutes, and gained the last amount back about as quickly. The intra-day change at the lowest point was 998.50 points, representing an intra-day loss of 9.2%. The event, during which the Dow bottomed out at 9,869 before recovering to end with a 3.2% daily loss at 10,520.32, became known as the 2010 Flash Crash.[33] The index closed the half-year at 9,774.02 for a loss of 7.7%.[34]

Recovering its Great Recession losses, the Dow closed at a new record high on March 5, 2013,[35] and on May 3 surpassed the 15,000 mark for the first time before towering above the next few millenary milestones thanks to commendable economic reports.[36][37][38] The index closed 2014 at 17,823.07 for a gain of 71% for the five years before progress became minimal the next year.[39] However, the overwhelming economic factors exhibited in 2015 precipitated the Dow's major pullback, which questioned some as to whether this was just a correction for the first time since 2011 or a fresh, new bear market.[40][41] This led to the Dow closing at 17,425.03 for 2015, the first annual loss since 2008.[42] After nearly 14 months since the last record close, the Dow finally achieved a fresh new, central-bank debt fueled record close on July 20, 2016 at 18,595.03 along with an intraday high of 18,622.01.[43]

During the late part of the 2010s, despite anticipations of post-election selloffs, the Dow rallied significantly after Donald Trump was elected President. On January 25, 2017, the Dow hit a record high of 20,000, an increase of 1,667 points since his election in November 2016.[44] Throughout the course of the rest of 2017 and January 2018, the Dow skyrocketed past a few millenary milestones, including the symbolic 25,000 on January 4, 2018.[45] However, on February 2, 2018, the Dow suffered its biggest loss since Brexit on June 24, 2016.[46] As volatility made its return for next week, the largest intraday point drop of 1,597.08 points and largest closing point drop of 1,175.21 points were both set on February 5, 2018 although percentage changes were not as extreme as some past stock market crashes.[47] Spring and summer brought much-needed relief for the Dow as the index eventually soared to new highs. By "fall", the Dow began falling tremendously again for two major reasons: fear of sudden spikes in interest rates by the Federal Reserve[48] and woes in technology stocks.[49] While the Dow plunged more than 10%, but less than 20%, on a closing-basis in late 2018 to confirm correction status, but not bear market status, the index rallied more than 10% from its Christmas Eve low, leading some to argue whether that correction has ended or needs to close at a new high.[50]

Investing

Investing in the DJIA is made widely accessible in equities through exchange-traded funds (ETFs) as well as in derivatives through option contracts and futures contracts.

Several ETFs follow the Dow Jones Industrial Average, including with short or leverage strategies.[51] The biggest has assets under management in the tens of billions dollars as of 2017.[52]

Due to the advent of pre-market trading, the ETFs provide a very accurate opening value for the average.[citation needed]

Assessment

Market performance

With the current inclusion of only 30 stocks, critics such as Ric Edelman argue that the DJIA is not a very accurate representation of overall market performance. Still, it is the most cited and most widely recognized of the stock market indices.[54][55] Additionally, the DJIA is criticized for being a price-weighted average, which gives higher-priced stocks more influence over the average than their lower-priced counterparts, but takes no account of the relative industry size or market capitalization of the components. For example, a $1 increase in a lower-priced stock can be negated by a$1 decrease in a much higher-priced stock, even though the lower-priced stock experienced a larger percentage change. In addition, a $1 move in the smallest component of the DJIA has the same effect as a$1 move in the largest component of the average. For example, during September–October 2008, former component AIG's reverse split-adjusted stock price collapsed from $22.76 on September 8 to$1.35 on October 27; contributing to a roughly 3,000-point drop in the index.[56]

As of March 2019, Boeing and UnitedHealth Group are among the highest priced stocks in the average and therefore have the greatest influence on it. Alternately, Pfizer and Coca-Cola are among the lowest priced stocks in the average and have the least amount of sway in the price movement.[57] Critics of the DJIA and most securities professionals recommend the float-adjusted market-value weighted S&P 500 or the Wilshire 5000, the latter of which includes all U.S. equity securities, as better indicators of the U.S. stock market.

Correlation among components

A study between the correlation of components of the Dow Jones Industrial Average compared with the movement of the index finds that the correlation is higher in a time period where the average recedes and goes down. The correlation is lowest in a time when the average is flat or rises a modest amount.[58]

References

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