Can someone explain the Dow Jones numbers that go up and down each day and why they are important?

I think that many if us have heard of the stock market and some may even know how the Dow works but I'm confused. Please explain .... Asked by justasking2755 39 months ago Similar questions: explain Dow Jones numbers day important Business > Financial Planning.

Similar questions: explain Dow Jones numbers day important.

It's the most famous indicator, but not the only one or even the best one The "Dow Jones Industrial Average" (abbreviated "Dow") is just an average of the prices of 30 stocks (though some stocks count more than others). These are stocks picked to be big, stable companies, so it’s supposed to give an overview of the health of the economy. Originally, they were big industrial companies producing sugar, tobacco, cotton, etc.They change it around every once in a while to reflect the changing economy, so now it has companies like Coke, Microsoft, Merck, and so on.

The complete list is at the source below, if you want it. If these are such big, stable companies, why does the price change so often? The changes reflect uncertainties in the economy, and right now nobody really knows what these companies are worth.

If the economy goes down, they drink less Coke, buy fewer computers with Microsoft Windows, buy fewer drugs from Merck, etc. When one company fails, it suggests that there are more problems we don’t know about yet. Big news causes investors to panic. The swings are actually bigger than the news really merits, because investors tend to follow other investors.

If everybody else is selling, I should sell too, because the last one to sell gets the lowest price. Then the next day, people figure they can get bargains, so they buy, and so MORE people buy, and so on. People follow the Dow, even though it really contains only 30 of the thousands of companies, because it’s the biggest, safest companies, the ones most fundamental to the economy.

There are other indexes, like the S&P and the NASDAQ, which use many more stocks. None of them is the one true measure of the economy. But since they all usually do roughly the same thing, and the Dow is the oldest and most famous, that’s what everybody talks about.

Sources: http://money.cnn.com/data/dow30/ .

1 An answer to your questions would be a very large text book.... I don't think I can write one of those this afternoon, so I'd recommend you check out your library and find some books on the topic. This is something one learns about over a long period of time. The basics are just the start.

An answer to your questions would be a very large text book.... I don't think I can write one of those this afternoon, so I'd recommend you check out your library and find some books on the topic. This is something one learns about over a long period of time. The basics are just the start.

2 This will be overly simplified, but I'll give it a try. People buy stocks with the expectation that over time the value will grow. Say you buy a share of Coca-cola stock for $100 dollars.

Coke will use the money raised from stock sales to expand their business, by buying modern equipment for example. With the new equipment they will make coke more cheaply, and their profits will increase. You as a shareholder will be paid a percentage the profits.

If this works out well, other people will want coke stock too, because it is paying off. With a lot of people wanting it, the price of the stock, $100, will go up. If you keep your share, its value will go up along with the price it is selling for that day.

If something goes wrong, say the new equipment works poorly or coke's accountant rips off the money, coke's profits will go down. You won't get paid any percentages. So now you decide to sell your stock.So do a lot of other people.

But you can't sell it for $100 dollars. Nobody wants to pay $100 dollars for it because they have heard about the fact that it won't pay off. You still want to get rid of it anyway.

Lots of people do. The more who want to sell, the less you'll be able to get for it. The stock will sell for less than you paid for it.

You will lose money. The more people selling, the lower the price will go. The price will drop to the point that people feel it is a good price again, they will start buying again and the value will go up.

So you see, what you want to do is buy low, sell high. Duh. The Dow-Jones industrials are a list of companies and their stock values.

These particular companies are the ones generally felt (at least by Mr. Dow and Mr Jones) to be the companies that are the bedrock of our economy. So, by looking at the average overall value of the stocks of these 500 companies, we can get a pretty good idea of how the economy of the whole country is doing. If the value of the Dow-jones industrials is going up, people are making money; the economy is growing.

If the average value of the Dow-Jones Industrials goes down, it seems to indicate that the overall economy is not growing. It is really all based on perceptions, what they call "consumer confidence". If the Dow is up, times are good.

People feel confident to spend money to buy stuff. As people buy stuff, money is changing hands; profits are being made. Profits being made leads to money to invest.

Money to invest leads to people buying stock. People buying stock leads to increased value of stocks. The Dow goes up.

It feeds on itself. Conversely, if the Dow falls, people get worried. They hang on to their money.

Investment decreases. Stock values fall. People get more worried.

People begin to sell their stocks before the fall too far. This drives the prices and values down. People get more worried.

You see the cyclical nature of it? Anyway, I hope that helps.NO one really understands how any of this crap works if you want to know the truth.

This will be overly simplified, but I'll give it a try. People buy stocks with the expectation that over time the value will grow. Say you buy a share of Coca-cola stock for $100 dollars.