The Dow Jones Industrial average is an index tracking 30 major American companies, and it rises when those companies' stock prices rise, according to Investopedia. Created to be a benchmark of American industry, the Dow Jones provides a reasonable overview of American stock market performance.Continue Reading
Prices for the 30 Dow Jones stocks rise and fall based on each one's supply and demand, explains Investopedia. When more investors are trying to buy a stock than trying to sell it, the stock's price rises. More investors may want to buy a stock when a company shows good earnings or if investors expect earnings to rise in the future. Investors may also want to buy a stock simply in the hope that the stock price rises. When stock prices rise above what companies are worth they may then suddenly fall, as during the dot-com bubble in the late 1990s.
There are some critics of the Dow Jones index, according to Business News Daily, who believe that 30 companies is not a representative sample size of the stock market. Other critics feel that the Dow Jones does not accurately reflect economic conditions for average Americans, as reported by the Huffington Post. For instance, in the period following the 2008 housing bubble, the Dow Jones rose faster than gains in jobs and wages.Learn more about Investing