Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA), also known as Dow Jones or just the Dow (/ˈdaʊ/), is an index of 30 notable American firms that are listed on stock exchanges. One of the most venerable and widely used equities indices is the DJIA. Compared to a more comprehensive market index like the S&P 500, many experts believe it to be an insufficient representation of the entire U.S. stock market. There are just thirty major corporations in the DJIA. In contrast to stock indices, which employ market capitalization, it is price-weighted. Moreover, there is no weighted arithmetic mean used by the DJIA.
The index’s value can also be computed by dividing the total stock prices of the index’s constituent companies by a factor, which, as of April 2024, is roughly 0.152. Every time a constituent business splits its stocks, the factor is adjusted to ensure that the split has no impact on the index’s value. The index is the second oldest U.S. market index, behind the Dow Jones Transportation Average, having been compiled for the first time on May 26, 1896. It was founded by Charles Dow, who also co-founded the Dow Jones & Company and The Wall Street Journal. It bears the names of both Dow and statistician Edward Jones, his business partner.
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Dow Jones Industrial Average
The Dow Jones Industrial Average is a key indicator of the stock market’s performance, reflecting the overall health of the economy. Investors often look to this index for insights into market trends and potential investment opportunities. Understanding how the Dow Jones operates and what factors influence its movements can help individuals make informed decisions when it comes to their investments. Keeping an eye on this iconic index can provide valuable insights into the financial world and guide your investment strategies effectively.
Dow Jones Industrial Average Details
Foundation
February 16, 1885; 139 years ago (as DJA)
May 26, 1896 (as DJIA)
According to the given weighting, the following companies make up the Dow Jones Industrial Average as of February 26, 2024.
Former components
Main article: Historical components of the Dow Jones Industrial Average
As of February 26, 2024, the components of the DJIA have changed 58 times since its beginning on May 26, 1896. General Electric had the longest continuous presence on the index, beginning in the original index in 1896 and ending in 2018. Changes to the index since 1991 are as follows:
On May 6, 1991, Caterpillar Inc., J.P. Morgan & Co., and The Walt Disney Company replaced American Can, Navistar, and U.S. Steel.
On March 17, 1997, Travelers Inc., Hewlett-Packard, Johnson & Johnson, and Walmart replaced Westinghouse Electric, Texaco, Bethlehem Steel, and F. W. Woolworth Company.
On November 1, 1999, Microsoft, Intel, SBC Communications, and Home Depot replaced Goodyear Tire, Sears Roebuck, Union Carbide, and Chevron Corporation. Intel and Microsoft became the first and second companies traded on the Nasdaq to be part of the Dow.
On April 8, 2004, American International Group, Pfizer, and Verizon Communications replaced AT&T Corporation, Kodak, and International Paper.
On February 19, 2008, Chevron Corporation and Bank of America replaced Altria Group and Honeywell. Chevron was previously a Dow component from July 18, 1930, to November 1, 1999. During Chevron’s absence, its split-adjusted price per share went from $44 to $85, while the price of petroleum rose from $24 to $100 per barrel.
On September 22, 2008, Kraft Foods Inc. replaced American International Group (AIG) in the index.
On June 8, 2009, The Travelers Companies and Cisco Systems replaced Motors Liquidation Company (formerly General Motors) and Citigroup. Cisco became the third company traded on the NASDAQ to be part of the Dow.
On September 24, 2012, UnitedHealth Group replaced Kraft Foods Inc. following Kraft’s split into Mondelez International and Kraft Foods.
On September 20, 2013, Goldman Sachs, Nike, Inc., and Visa Inc. replaced Alcoa, Bank of America, and Hewlett-Packard. Visa replaced Hewlett-Packard because of the split into HP Inc. and Hewlett Packard Enterprise.
On March 19, 2015, Apple Inc. replaced AT&T, which had been a component of the DJIA since November 1916. Apple became the fourth company traded on the NASDAQ to be part of the Dow.
On September 1, 2017, DowDuPont replaced DuPont. DowDuPont was formed by the merger of Dow Chemical Company with DuPont.
On June 26, 2018, Walgreens Boots Alliance replaced General Electric, which had been a component of the DJIA since November 1907, after being part of the inaugural index in May 1896 and much of the 1896 to 1907 period.
On April 2, 2019, Dow Inc. replaced DowDuPont. Dow, Inc. is a spin-off of DowDuPont, itself a merger of Dow Chemical Company and DuPont.
On April 6, 2020, Raytheon Technologies replaced United Technologies. Raytheon is the name of the combination of United Technologies and the Raytheon Company, which merged as of April 3, 2020. The newly combined conglomerate does not include previous subsidiaries Carrier Global or Otis Worldwide.
On August 31, 2020, Amgen, Honeywell, and Salesforce.com replaced ExxonMobil, Pfizer, and Raytheon Technologies.
On February 26, 2024, Amazon replaced Walgreens Boots Alliance.
Investment methods
Both index funds and derivatives, such option and futures contracts, can be used to invest in the DJIA.
Index funds, which comprise mutual funds and exchange-traded funds (ETFs), can mimic the index’s performance in terms of equities held in the same proportions, prior to fees and expenditures. State Street Corporation (NYSE Arca: DIA) produces an ETF that mimics the index’s performance. Leveraged ETFs from ProShares aim to provide three times the daily return from buying (NYSE Arca: UDOW) or selling short (NYSE Arca: SDOW) the Dow Jones Industrial Average. The CME Group issues futures in the derivatives market through its subsidiaries, the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME).
History
Charles Dow created his first stock average in 1884 using data from two industrial companies and nine railroads that were published in the Customer’s Afternoon Letter, a two-page daily financial news bulletin that served as the forerunner to The Wall Street Journal. After the Central Pacific Railroad and Central Railroad of New Jersey were eliminated on January 2, 1886, the number of stocks included in what is now the Dow Jones Transportation Average decreased from 14 to 12. This index included the same number of stocks, but just one of the original twelve industrials that would later make up the Dow’s most well-known index was present.
Computation
The DJIA is calculated by dividing the total price of all thirty stocks by the Dow Divisor. In order to prevent stock splits, spinoffs, or other such structural changes from changing the DJIA’s numerical value on their own, the divisor is changed in these situations. The DJIA was first an arithmetic average since the original divisor was made up of the original number of component businesses. After numerous modifications, the current divisor is less than one, meaning the index is greater than the total of the component prices. That is:
Assessment
Fewer equities than other indexes, such the S&P 500 Index or the Russell 3000 Index, provide the DJIA an imprecise picture of the performance of the entire market, according to critics like Ric Edelman. It is also argued that the DJIA is unfairly biased as an index based solely on price, meaning that equities with higher prices have a greater influence on the average than those with lower prices, without considering the differences in market capitalization or industry size across the constituents. A $1 increase in one stock that is priced lower, for instance, can be offset by a $1 decrease in a one that is priced much higher, even though the lower-priced stock had a bigger percentage change. It also has the same effect when a $1 shift is made in the DJIA’s smallest component.
