What does it mean when they say the Dow is down 26 points?

Question

What is a point does it mean cents

Answer 1

It doesn't mean a whole lot, actually. The Dow is a constructed average that is widely followed. That is its main value. Believe it or not, the Dow can actually go up while the value of the stocks goes down. The reason is that the Dow value is a price weighted index that is calcuated using something called the "Dow Divisor". The original Dow index was calculated by adding up the total price of all of the index components and dividing it by the number of shares in the index. The Dow divisor was created to keep the index tracking when things happen such as dividends and stock splits. Originally, a one point move in a stock on the Dow corresponded to a one point move in the index. When a stock splits or pays a dividend, that is accounted for by adjusting the divisor. In October of 2005, the divisor was 0.12493117. It is probably fairly close to that now, but would definitely be little lower. Using the October 2005 divisor for every one dollar change in the price of a stock, the Dow moves approximately 8 points (1/.012493117). A one dollar move now might cause the Dow to move 8.5 points or so.

That means that a $1 move in a $100 priced Dow component stock is treated identically to a $1 move in a $20 priced Dow component stock, despite the fact that the $20 stock had a 5% move and the $100 stock only had a 1% move. If the $100 gains $5 and the $20 stock loses $5 and you hold equal amounts of each (and assuming all of the other Dow components do not move), the Dow would be unchanged, despite your large losses in the $20 stock. In other words, if you invested $1000 in each Dow stock, the above scenario would have lost you $200 ($50 gain on the $100 stock and a $250 loss on the $20 stock). You lose money even if the Dow stays completely flat.

One stock moving a little over $3 can cause a 26 point drop in the Dow. All stocks in the index aggregating a -$3 per share can cause a 26 point drop in the Dow. You may or may not be losing money if you hold the actual stocks in the index.

Answer 2

Dow Jones is a popular way of referring to the Dow Jones Industrial Average which is an index of a collection of important stocks in the US. The index moves lockstep with the stocks. If the stocks go up, the index goes up and vice versa. When the Dow is down 26 points it means the index is 26 points lower. It could be with reference to the previous day's closing level or could refer to movement during the day.

Answer 3

It means since the close of the previous day's business, the combined index known as the DOW has dropped in aggregate price 26 dollars.

Answer 4

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