Financial Management Report: Dow Jones Index Performance Analysis

This report, focusing on financial management, analyzes the Dow Jones Industrial Average (DJIA) to understand its performance and predict future trends. It begins with an overview of the DJIA, its composition, and factors influencing its movement. A past performance analysis examines historical data to identify trends and patterns. Quantitative analysis involves statistical methods to forecast future index levels, considering factors like average daily returns, standard deviations, and the index's price-weighted nature. Qualitative analysis explores external factors like economic data, geopolitical events, and market sentiments. The report also considers the impact of high-performing companies within the index and the role of the committee managing component changes. Key concerns like trade wars, global economic slowdowns, and interest rate policies are also considered. The report concludes by summarizing the key factors influencing the DJIA's movement, providing valuable insights into financial market dynamics.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
“Value of Dow Jones Industrial Average Index in March 2020”..............................................2
Stock Market Index................................................................................................................2
Past Performance Analysis.....................................................................................................2
Quantitative Analysis.............................................................................................................2
Qualitative Analysis...............................................................................................................5
References..................................................................................................................................7

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“Value of Dow Jones Industrial Average Index in March 2020”
Stock Market Index
Dow Jones Industrial Average or simply the Dow is a key stock market index that
shows and measures the performance of the 30 large companies that are listed in the stock
exchange in US. The value of the index is calculated with the help of the sum of price for one
share of stock for each component company and is divided by a factor that would be
changing whenever one of the component stock will be seeing a stock split or a stock
dividend (Williams 2019). The index is considered as second oldest index, which is after the
Dow Jones Transportation Index. Movement in the stock market index is dependent on a
multiple factors from the business factors economy and industry wide factors. Any changes o
shocks in these factors causes the stock market index to move (Alves, Duarte and Da Mota
2018). There are a various, nearly infinite number of factors that causes the movement in the
stock market index. Key factors like the economic data, geopolitical events and the market
sentiments in term of future outlook with respect to company and industry wide factors plays
a crucial role. The movement of the analysed stock index which is the Dow, also depend on
this factors. In order to well identify and find out the movement in the index or forecasting
using both quantitative and qualitative data would be done for finding out the range of Dow
Jones as of 2nd March 2020.
Past Performance Analysis
The movement of index in the future forecasting time period can be determined based
on the historical performance analysis of the index whereby key set of data like the daily
movement of index for the sum of last five years will be taken into consideration. The data
that has been collected for the index will be used for the purpose of estimating the risk and
average daily movement that is seen in the stock. The term period of analysis will be around
40 days that is forecasting of the index from the period 21st of January 2020 to 2nd March
2020 (Longforecast.com 2020).
Quantitative Analysis
The data collected for the historical trend period will be considered for observing the
daily movement that has been seen in the index. Now for forecasting the future result the
average percentage changes would be done. The key reason why historical change or past
performance has been taken into consideration is primarily because of the key reason that
stock market indexes are in particular affected by a multiple factors and any changes in the

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US economy, or business factors and global market factors would have affected the stock
market index (Domeniconi et al., 2017). The historical data collected for the index which has
been for a sum of five years will be used hence for forecasting the future movement of the
stock index. The data collected for the stock for the sum of five years which is for 1258
working days shows that on an average the index on a daily basis has generated a return of
about 0.043% on a daily basis (Alvarez-Ramirez, Rodriguez and Ibarra-Valdez 2020). The
standard deviation seen for the data collected has been around 0.848%. While the data for
which the forecasting has been done is for a sum of 31 days where by relevant changes in the
financials of the index would be taken into consideration. It is important to note that we have
only taken working days into consideration for the purpose of analysis. The current level as
on 17th January of the Dow Jones Index is around 29,348 and the expected movement in the
index is based on the historical data that has been collected for the index (Mademlis and
Dritsakis 2018).
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Dow Jones Industrial Average Past Performance
The Dow Index is the most iconic market index in the world, the index that was
started around 123 years ago holds, around 30 multinational companies from a wide variety
of industries. While most investors are focused on the long-term performance of the index
and when it would be clearing the next milestone of 35,000 or will it able to cross the 35k
level in the current year. The Dow 35,000 would might seem like a pipe dream, especially
considering the fact that the Dow was just below the range of 6,600 around 10.5 years ago.
Now the key reason why the Dow could achieve 30,000 levels (however the actual range
derived is around 29,738) till 2nd March 2020 are as follows:
1. The Data Collected Says it All

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Now in order to well begin with the quantitative data analysed above, data collected
could be of a meaningful resources that would help us know the movement of the index in the
trend period that has been considered. The average daily return that has been provided by the
Dow Jones Industrial Average Index is around 0.043% over the five year data analysed.
Particulars (%)
Average Movement 0.043%
Average Standard Deviation 0.848%
Index Movement
Expected Change in 31 Days 1.33%
Current Level of Dow Jones
29348.1
0
Expected Level of Dow
Jones
29738.5
3
2. The Index is a Price Weighted Index whereby highest priced companies are
Outperforming.
The another factor that would be considered is that the Dow Index is a price weighted
index implying that the share price of the stock matters rather than the market cap that
matters the most. The divisor of Dow stood at 0.1474 and the large jumble of number clearly
highlight the fact that for every $1 change in Dow Component stocks or shares, the changes
in the index that would be observed will be around 6.782 point movement. The Dow
currently has around six components whereby the share price that is north of $200. The key
stocks that forms and gives the highest amount of weightage is stocks like Boeing, Apple,
McDonald’s, United Health, Home Depot and Goldman Sachs. On a combined basis the
stocks almost on an average accounts for 9,942 Dow Points, that is nearly about 37% of the
index value. It is important to note that most of these high-share price stocks would be taken
on an absolutely run circles that would be around their peers over the past decade in terms of
the total return.
3. Poor Performing Companies are Ruled Out
The committee that would be handling the changes in the component of Dow Jones
Index could be well done when it comes to pretty quickly removing the companies that in
turn are underperforming. Since the day the Dow Started the index has seen changes in its
components that is a bit over 50 times. This is often done in the case of a component that no

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longer would be taken as a relevant in the U.S Economy or when the share price of the
company falls that is having an impact on the price weighted index.
4. Great Companies tend to rise in Value terms over a defined period of time which will
boost the Index.
It is important to note that the Dow Index is primarily comprised of well-known
branded companies that the investors are familiar with and long-term investors generally tend
to prefer then for investment purpose. Companies like Microsoft and Johnson & Johnson that
are some of the common public traded companies in the US which are having a AAA credit
rating. The Johnson Company in particular had a 35-year streak of adjusting operating
income growth. The company also reported a impressive 57-years streak of increase in the
quarter dividend that has been paid by the company. The Johnson Company in particular has
three key operating segments that are primarily pharmaceuticals, consumer health products
and medical devices. Each of the segment that the company offers brings one or the other
products that are usually demanded and used by the consumer as a daily consumable or as a
mostly used goods. The health combination that the company has in terms of healthy profit
margins, long-tail growth and predictable level of cash flows are some of the key points for
the company. The positive changes in the Johnson and Microsoft Company will be some of
the ley factors that would be boosting the movement of the Dow Jones for the time period
analysed.
Qualitative Analysis
The qualitative analysis of the company can be well done with the help of belief and
review that the analyst on Wall Street have currently in respect to the movement of Index.
The stock market woes comes despite the signs that the general economy in turn is doing well
with a record set of low unemployment and strong GDP Growth, with a relatively low
inflation has been the key reason for the boost observed in the index (Ungarino 2016). The
key reason why the level of Dow Jones Index could hit near about 30,000 levels is considered
on both positive and negative which would be contributing the movement in the index. The
key concerns that in turn could affect the movement of the index is the ongoing trade war
with China, the slowdown in the global economic growth and amidst rising concerns that the
Federal Reserves in turn could increase the interest rates are some of the key concerns that
can affect the stock market index (Frazee and Frazee 2018).

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The Trump Administration’s Tariffs that were on the imported steels, aluminium and
other goods in particular have increased amidst increasing global tensions in the economy.
The Trump Administration levied the Aluminium and Steel Tariffs to every country it trades
with including the US Allies. The Shanghai Stock Exchange has almost lost a quarter of it
value for the year due to the ongoing trade war and has observed the lowest growth since the
global financial crisis. The Federal Reserve has raised the interest rate almost four times in
the year, but it is expected that the increase in the hike rate would not be seen any more in the
coming days or fed meeting which in turn would be boosting the stock market movement. An
increase in the interest rate could in turn increase the chances that the economy would
undergo recession. The reduction in the interest rate would be acting as a key tool that would
be helping in well fighting the downturn observed in the economy. The current benchmark
levels are still low and if another set of recession hits then the Fed might not have as much as
available option for well recovering the economy. The tightening of monetary policies which
were followed by the Federal Reserves and world’s other major Central Banks have in turn
reduced the liquidity in the market and is in turn creating obstacles for obtaining credits and
loans. The top industries which significantly dominate the index is the Financial Services,
Information Technology and Pharmaceuticals Industry and any changes observed in these
industries would in turn be affecting the movement observed in the index.
On a conclusive note it could be well stated that with the easing trade war that is
ongoing between US and China would be helping in stabilizing the stock market. Stability
and further reduction in the prices of Oil as a global commodity would in turn be positively
affecting the companies which in turn would help better levels of profitability. The movement
in the Dow Jones in the past trend period has been seen on a positive scale and the same
would be positively affecting the movement of the index in the forecasted trend period which
ius based on the data collected and factors analysed.

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References
Alawneh, A., 2018. Investigation of Co-Integration between Standard and Poor Index and
Dow Jones Index in the New York Financial Market. International Journal of Economics
and Finance, 10(5), pp.197-211.
Allen, D. E., McAleer, M., & Singh, A. K. (2017). An entropy-based analysis of the
relationship between the DOW JONES Index and the TRNA Sentiment series. Applied
Economics, 49(7), 677-692.
Allen, D.E. and McAleer, M., 2019. A Nonlinear Autoregressive Distributed Lag (NARDL)
Analysis of West Texas Intermediate Oil Prices and the DOW JONES Index. Available at
SSRN 3371704.
Alvarez-Ramirez, J., Rodriguez, E. and Ibarra-Valdez, C., 2020. Medium-term cycles in the
dynamics of the Dow Jones Index for the period 1985-2019. Physica A: Statistical
Mechanics and its Applications, p.124017.
Alves, P.R.L., Duarte, L.G.S. and Da Mota, L.A.C.P., 2018. Detecting chaos and predicting
in Dow Jones Index. Chaos, Solitons & Fractals, 110, pp.232-238.
Domeniconi, G., Moro, G., Pagliarani, A., & Pasolini, R. (2017, November). Learning to
Predict the Stock Market Dow Jones Index Detecting and Mining Relevant Tweets.
In KDIR (pp. 165-172).
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PBS NewsHour. Available at: https://www.pbs.org/newshour/economy/making-sense/6-
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[Accessed 22 Jan. 2020].
Khan, M.M.S., Ghayas, M.M. and Kashif, S., 2019. Why Firms Fail to Sustain? Evidence
from Dow Jones Index. South Asian Journal of Management, 13(2), pp.116-136.
Livieris, I.E., Kanavos, A., Vonitsanos, G., Kiriakidou, N., Vikatos, A., Giotopoulos, K. and
Tampakas, V., 2018, July. Performance Evaluation of an SSL Algorithm for Forecasting the

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Dow Jones Index Stocks. In 2018 9th International Conference on Information, Intelligence,
Systems and Applications (IISA) (pp. 1-8). IEEE.
Longforecast.com. 2020. Dow Jones Forecast 2020, 2021, 2022 - Long Forecast. [online]
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Mademlis, D.K. and Dritsakis, N., 2018, July. Volatility between oil prices and stock returns
of dow jones index: a bivariate GARCH (BEKK) approach. In International Conference on
Applied Economics (pp. 209-221). Springer, Cham.
Ungarino, R. 2016. The man who called for Dow 20,000 six years ago now sees this ahead.
[online] CNBC. Available at: https://www.cnbc.com/2016/12/15/the-man-who-called-for-
dow-20000-six-years-ago-now-sees-this-ahead.html [Accessed 22 Jan. 2020].
Williams, S. 2019. 4 Reasons the Dow Will Hit 100,000 in 15 Years | The Motley Fool.
[online] The Motley Fool. Available at: https://www.fool.com/investing/2019/09/26/4-
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