People seem to talk about it as a measure of how the economy is doing? But like what IS it exactly? And what does it mean that it dropped 1,400 points yesterday and today? What are “points?” I suck so bad at economics, it’s so hard for me to understand.
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Dow Jones is an index (a number that tells you how a group of companies are doing) that tracks 30 very large companies across various industries. Most of these will be firms you’ve heard of like Apple, Amazon, Boeing, Verizon, Walmart etc. Since they are mega-corporations in a variety of industries, the price of the DJIA is a somewhat decent indicator of how the broader economy is doing.
Points generally refer to percentages in the market. 1 basis point (bps) is 0.01%. However, point can also mean dollars. The DJIA uses the dollar definition.
The Dow Jones is a stock market index that tracks 30 big U.S. companies, like Apple and McDonald’s, to give a general idea of how the market is doing. “Points” are just a way to measure how much it moves up or down. When people say the Dow “dropped 1,400 points,” it just means those companies lost value, usually because investors are worried about something—like the economy, inflation, or bad news. A big drop can be a sign that people are losing confidence, but since it only tracks 30 companies, it doesn’t tell the whole story of the economy. Still, it’s one of the main ways people gauge how things are going in the stock market.
The Dow Jones Industrial Average is what is known as an “index”. It’s basically just a collection of stocks.
The intent is to have a standard “basket” of stocks so you can compare its value between two points of time. If you compare the DJIA today with that of the same time last year, you have a pretty good approximation for how the stock market is going.
The NASDAQ is a similar one, as is the S&P500. You’ll sometimes see these as well.
The DJIA attempts to find thirty “normal” stocks that are supposed to be a representative of the economy as a whole. The stocks involved don’t change often, but they do change.
Because of this, it’s seen as a reflection of the stock market as a whole. It’s not going to be perfect–since they only include big, established companies, they’ll never add some rapid-growth unknown–but by and large it’s a decent enough approximation.
The “points” are basically what this basket of stocks is worth. So if the DJIA goes up 2%, that means that the 30 companies included have increased in value by 2%. (Because of the way the stocks are allocated and replaced, they’re weighted, so you can’t get a direct $-to-points conversion, which is why they generally mention points.)
Keep in mind that while the stock market and the overall economy are related, they aren’t the same. It’s possible to have a good economy but a middling DJIA, or vice versa. The long term data is more accurate; one-day drops or spikes should be ignored if you’re looking for an overall picture of the economy.
The Dow Jones Industrial Average is a stock index. It is essentially the average value of the stocks of 30 major American companies. You can see a list of them here. There are lots of stock indices, and most of them include more than 30 companies. The S&P 500, as you might expect, aggregates the prices of 500 stocks and so is usually a better measure of the broader health of the stock market.
Because each stock has a different price and different numbers of shares, the entire index is measured in terms of “points.” The definition of a point isn’t all that important. What matters more is how much it is changing relative to the total number of points. The decline over the past few days was around 3.3% of the total value of the companies in the index, which is pretty bad but not the worst it has ever been. Those companies lost that value because stock traders anticipate that the tariffs imposed by Trump (which were larger than they expected) will reduce the profits of the companies in the index. For example, Nike and Apple (which are in the Dow index) manufacture a lot of their products overseas, so the tariffs mean they will either pay more to continue doing that or pay more to manufacture them domestically.