• The Market: 101

    Drop It Dow Low: What is the Dow Jones?

    You may (or may not) have heard that the Dow Jones has been dropping it like it’s hot lately, dipping 1,150 points just last week. World events and uncertain economic conditions can result in market volatility — when the stock market changes moods faster than your teenage sister. But, what exactly is the Dow Jones? And why has it been making major money moves recently?

    The Dow Jones Industrial Average (DJIA) is a stock market index that includes 30 large, U.S. publicly-traded companies and acts as a thermometer, testing the overall health of the U.S. marketplace. Sounds a lot like the S&P 500 index, right? 

    Here are several key differences between the S&P 500 and the DJIA:

    S&P 500Dow Jones (DJIA)
    Founded in 1957Founded in 1896
    500 of the largest U.S.-based publicly-traded companies across all industries 30 of the largest U.S.-based publicly-traded companies across all industries (originated with just 12 companies solely in the industrial sector)
    Companies selected by S&P Committee (owned by McGraw Hill Financial)Companies selected by Dow Jones & Co. Averages Committee
    Companies selected based upon specific qualification criteria No defined criteria for how a company is selected — generally, must be a large leader in their industry
    Stocks within the index are weighted by market capitalization (market cap = # of outstanding shares x market price)Stocks within the index are price-weighted (the higher the stock’s market price, the more influence it will have on the index’s performance)
    Often considered the “single best indicator” of stock market performance, because of its broad and diverse collection of companies across all industriesMost well-known stock market index. But, because if its exclusivity (only represents 30 of over 3,000 US public companies), it is more an indicator of blue-chip stocks than the market overall

    OK, now that we’ve got a grasp on what the Dow Jones Index is, let’s talk about why it’s been dropping faster than your bank account after a trip to Target.

    The stock market can be affected by many factors, such as political changes, natural disasters, inflation, interest and exchange rates, and unexpected world events — just to name a few. Most recently, when the Dow Jones stumbled and fell by 4 percent in early October, it was likely due to sipping a cocktail of rising Treasury yields, the increased Federal Funds rate, and the China-U.S. trade war. Just like how you get a little wobbly after drinking one too many cocktails, the stock market also gets shaky (see: volatile) when too many uncertain events are mixed together at the same time. The stock market: it’s just like us.

    But, not to fear. Similarly to how you will drink lots of water, take an Advil, and eat greasy food to bounce back after a night out, the stock market bounces back, too. Usually, the severity of the market fall will determine how long it will take to rebound. Small corrections can be overcome in just a few days, whereas a full-blown financial crisis may take years to recover from (think: the 2008 Great Recession).

    To recap: the Dow Jones is the most well-known market index, comprised of only 30 companies across various industries, and is used to evaluate general trends in the stock market. Recently, the Dow Jones took a big tumble due to a woozy cocktail of world events and interest rate changes. But, don’t worry. Analysts remind us that the market often panics over everything and can sometimes be a bit overdramatic…#Relatable. So, for now, be prepared to ride the roller coaster of market volatility, because over the long-term, the market always trends upward. Ask Warren Buffett.

    Congratulations! You now know what the Dow Jones is and why it’s been in the headlines lately. But, this article was not meant to be an in-depth analysis of the Dow Jones (because ain’t nobody got time for dat). If you’d like to dig in a little deeper to the topics covered above, feel free to click on any of the hyperlinks (including that one) to become a Dow Jones expert. You’re welcome.

    Written By: Kaitlyn Duchien (@ktaylor1395)

    Contact Us: facethefearfw@gmail.com

  • The Market: 101

    Taking Stock: What is the S&P 500?

    Standard and Poor: Is this the title of my autobiography? Or a stock market index? Honestly, both.

    The Standard & Poor’s (S&P) 500 is a stock market index consisting of 500 of the largest publicly-traded U.S. companies, measured by market capitalization. In other words, the S&P 500 is a exclusive group of 500 hot-shot companies that–as a whole–provide a glimpse at how the U.S. economy is doing overall.

    In order to enter the exclusive S&P 500 club, companies need to meet some pretty intense qualifications. Just to name a few, the company must have:

    • Headquarters in the United States
    • A market cap of $5.3 billion or more (market cap = $ of shares x # of shares outstanding)
    • Positive earnings in the last 4 most recent quarters
    • Actively trading at a reasonable price, with the majority of its shares held by investors (instead of sitting on a shelf waiting to be sold)

    But, even after meeting all of these requirements (and then some), a company is still not guaranteed to be included in the S&P 500 index. Think of the S&P 500 like Regina George and The Plastics — they’re rich, famous, and everybody wants to be in their group.

    OK, so now that you know what the S&P 500 is, why does it matter to you? Well, think of it this way. When you go on Amazon to buy literally anything, the first thing you do is check the reviews on the product to make sure it’s a reasonable investment, right? You want to poll the masses to see what the general public has to say first, preventing you from spending your hard-earned money on a sketchy product that takes six months to be delivered and, when it arrives, might not even be “as pictured.” Overall, the more five-star reviews the product has, the better.

    The S&P 500 is similar in the sense that it provides the public a simple gauge to understand how the stock market is performing overall, which will help us guide our investment decisions. This is also why the S&P 500 is a popular index to invest in through mutual funds and other sources, as it pools some of the largest companies across the U.S. into one collective group, rather than investing into each individual company separately. It’s the same reason why you would probably buy a TV on Amazon with 5,000 4.5-star reviews, rather than a TV with only one five-star review. Crowd-sourcing (on Amazon) and diversification (in your investment portfolio) makes all the difference, people.


    Congratulations, you now know what the S&P 500 is and why it matters to you! But, this article was not meant to be an in-depth analysis of the S&P 500 (because ain’t nobody got time for dat). If you’d like to dig in a little deeper to the topics covered above, feel free to click on any of the hyperlinks (including that one) to become an S&P expert. You’re welcome.

    Written By: Kaitlyn Duchien (@ktaylor1395)

    Contact Us: facethefearfw@gmail.com