The Dow Jones
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Also known as the Dow Jones Industrial Average (DJIA) or simply the Dow.
The DJIA is a price-weighted average of 30 actively traded U.S. blue chip stocks of Americas 30 biggest companies, primarily industrials, and it is the oldest and most widely quoted of all the market indicators. Like all indices, the average is quoted in points, not in Dollars.
It is called an "average" because it originally was computed by adding up stock prices and dividing these by the number of stocks.
The DJIA is the best-known market indicator in the world, partly because it is old enough that many generations of investors have become accustomed to quoting it, and partly because the U.S. stock market is the worlds biggest. It is believed that by looking at the companies on the list, a person can get a general picture of how the market as a whole is performing.
The Dow Jones started on May 26, 1896 when the New York journalist Charles Henry Dow, co-founder of Dow Jones & Co. Inc. which is today known as the Wall Street Journal, published an index with 12 companies
and opened at 40.94 points.
Charles Dow
Edward Jones
Of those original 12, only General Electric remains part of the average. The other eleven were:
- American Cotton Oil Company, a predecessor of Bestfoods, now part of Unilever
- American Sugar Company, now Amstar Holdings
- American Tobacco Company, broke up in 1911
- Chicago Gas Company, bought by Peoples Gas Light & Coke Co. in 1897 (now Peoples Energy Corporation)
- Distilling & Cattle Feeding Company, now Millennium Chemicals
- Laclede Gas Light Company, still in operation as The Laclede Group
- National Lead Company, now NL Industries
- North American Company, broken up in the 1940s
- Tennessee Coal, Iron and Railroad Company, bought by U.S. Steel in 1907
- U.S. Leather Company, dissolved 1952
- U.S. Rubber Company, changed its name to Uniroyal in 1967, bought by Michelin in 1990
In 1916, the number of stocks in the DJIA was increased to twenty, and finally to thirty in 1928.
The Dow Jones Listed Companies Today
- AT&T (telecommunications) - T
- Alcoa Inc. (aluminium) – AA
- American Express Co. (financial services) - AXP
- American International Group, Inc. (insurance) - AIG
- Bank of America (financial services) - BAC
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Boeing Co. (aviation and aerospace / aircraft manufacturer) - BA
- Caterpillar Inc. (heavy duty equipment) - CAT
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Chevron (petroleum) - CVX
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Citigroup Co. (financial services) - C
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Coca-Cola Co. (beverages) - KO
- Disney Co. (entertainment) - DIS
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DuPont (chemicals) - DD
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Exxon Mobil (petroleum) - XOM
- General Electric Co. (electrics and electronics, financial services) - GE
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General Motors Corp. (automobile manufacturer) - GM
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Hewlett-Packard Co. (computer hardware and printers) - HPQ
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Home Depot, Inc. ( retailer specializing in home improvement) - HD
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Intel Corp. (microprocessors) - INTC
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International Business Machines Corp. (hardware, software and services) - IBM
- JP Morgan Chase & Co. (financial services) - JPM
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Johnson & Johnson (pharmaceuticals) - JNJ
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McDonald's Corp. (fast food franchise) - MCD
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Merck and Co., Inc. (pharmaceuticals) - MRK
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Microsoft Corp. (software) - MSFT
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3M Co. (materials, electronics) - MMM
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Pfizer Inc. (pharmaceuticals) - PFE
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Proctor & Gamble Co. (household supplies, pharmaceuticals) - PG
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United Technologies Corp. (aerospace, defense) - UTX
- Verizon (telecommunications) - VZ
- Wal-Mart Stores, Inc. (retailer) - WMT
By November 14, 1972, the Dow closed above 1,000 (1,003.16) for the first time.
The 1980s and especially the1990s saw a very rapid increase in the Dow. On November 21, 1995 it closed above 5,000 (5,023.55) for the first time and on March 29, 1999 the Dow closed at 10,006.78 which was the first time the index closed above the 10,000 mark.
Just over a month later on May 3, 1999, it closed at 11,014.70, its first close above 11,000.
The Dow closed at an all-time peak of 11,722.98 on January 14, 2000.
By mid-2002 however, it had returned to its 1998 level of 8000 after the Internet bubble of the late 1990s popped on March 20, 2000, sending the Dow into a downward trend for almost 3 years.
On October 9, 2002, the Dow bottomed out at 7286.27 (intra-day low 7197.49), its lowest close since October 1997. But by the end of 2003, the Dow returned to the 10,000 level.
Criticism
Some people criticize the DJIA because it is a price-weighted average, which gives relatively higher-priced stocks more influence over the average than their lower-priced counterparts.
This can produce misleading results, as a $1 increase in a lower-priced stock can be negated by a $1 decrease in a much higher-priced stock, even though the first stock experienced a larger percentage change.
Additionally, the inclusion of only 30 stocks in the average has brought on additional criticism of the average, as the DJIA is widely used as an indicator of overall market performance. Because of these issues, the S&P 500 is becoming more widely quoted and used as a more realistically broad market-performance indicator.
Components
The individual components of the DJIA are occasionally changed as market conditions warrant. They are selected by the editors of The Wall Street Journal. When companies are replaced, the individual weightings are adjusted so that the value of the average is not directly affected by the change.
On November 1, 1999, Chevron, Goodyear Tire and Rubber Company, Sears Roebuck, and Union Carbide were removed from the DJIA and replaced by Intel, Microsoft, Home Depot and SBC Communications.
Intel and Microsoft became the first two companies traded on the NASDAQ exchange to be listed in the DJIA. On April 8, 2004, another change occurred as International Paper, AT&T, and Eastman Kodak were replaced with Pfizer, Verizon and AIG.
Ricky Schmidt
August 15, 2005
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