While we take the FTSE 100, Dow Jones Industrial Average and the NASDAQ for granted, you may be surprised at the history of stock market indices. Used as a way to reflect the underlying economy and performance, they have been a helpful indicator of future economic trends. Consequently, they have proved to be priceless to investors, comparing and contrasting the performance of stocks and indices.
Dow Jones and Company
Charles Dow and Edward Jones were co-founders of Dow Jones & Company, which would become a giant in the world of stock market indices. While there is still a publishing group called Dow Jones & Company, ownership of the indices was transferred to a joint venture between S&P Global, CME Group and News Corp some years ago. While many believe that the Dow Jones Industrial Average (DJIA) is the oldest index, this is not the case.
Dow Jones Transport Average
The Dow Jones Transport Average index, which initially consisted of 20 transportation stocks in the USA, was first published in 1884. While the Dow Jones Transport Average index is still calculated today, many believe the index isn’t a broad enough reflection of the underlying economy. However, some experts think that the Dow Jones Transport Average is still relevant today – industries make, and the transporters take. So, if the transport index is doing well, this would typically indicate a healthy economy.
Dow Jones Industrial Average
The original Dow Jones Industrial Average was launched in 1896, and while initially consisting of just 12 companies, they were spread across sectors such as railroads, cotton, gas, sugar, tobacco and oil. There was a feeling that this gave abroader reflection of the underlying US economy, and we saw the launch of a heavyweight index. Today the Dow Jones Industrial Average consists of 30 of the most popular/largest companies quoted on US stock markets.
FTSE 30 index
Originally a joint venture between the London Stock Exchange and the Financial Times, the FTSE Group is now part of the London Stock Exchange Group. The FTSE 30index was first published in July 1935. While somewhat dismissed today, it still exists as the FT Ordinary Index. The original components included the likes of brewers, motoring companies, chemical groups and retailers, to name but a few -30 companies in total. Similarly to the Dow Jones Transport Average, it was superseded by the FTSE 100, based on a more comprehensive selection of businesses.
FTSE 100 index
The broader FTSE 100 index was launched on 3 January 1984, just before the explosion of private investment in the UK. While there is now a whole range of different variations on the FTSE theme, the FTSE 100 is recognised worldwide. As with any other index, the larger companies are now international, with some critics suggesting the FTSE 100 does not accurately reflect the UK economy. The emergence of multinational giants has brought into question the value ofdomestic indices, but what else is there to use?
Tracking markets
While many short-term/day traders depend upon an array of technical indicators, many will also consider the relative performance of stocks against domestic indices. We may be at a stage where stock markets should be regarded as international rather than domestic, although indices are still very important.
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