Wiser Wealth: The DOW Hit 30,000 Last Week. What is the Dow and Why It Matters

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The Dow Jones Industrial Average tells the daily story of financial markets as it tracks 30 stocks of big U.S. companies.

It includes all major industry sectors except utilities, transportation and real estate, which are represented in separate indexes.

The Dow began as a gauge of “smokestack” industrial and raw-materials companies but now represents a much broader mix of firms.

It’s calculated by adding the prices of the 30 stocks and dividing by a “Dow divisor” that smooths over infrequent changes like stock splits and new index entrants.

The Dow is weighted by share price. Other indexes such as the S&P 500 are weighted by market value. This means the Dow and the S&P 500 may rise and fall differently, since the emphasis for each index is different.

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Charles Dow was the Wall Street Journal’s first editor and he began including the Dow in 1896 based on an average of 12 stocks. He created the Dow to explain stock market movements. 

The industrial average expanded to 20 names in 1916 and 30 companies in 1928.

The last member of the original 1896 stocks was General Electric Co., which was replaced by Walgreens Boots Alliance Inc. in 2018, though it has been removed and reinstated in the intervening years.

The longest-tenured member of the Dow was Exxon Mobil Corp which joined the index in 1928 as Standard Oil of New Jersey before being removed in August.

Now Proctor & Gamble Co, which was added in 1932, holds that title.

Membership is determined by a committee of representatives of S&P Dow Jones Indices and the Journal. It looks at U.S-based firms with “excellent reputations” with a capacity for sustained growth well-followed by investors.

The Dow Jones Industrial Average continues to give us day to day updates on the financial markets, but it’s also providing a 100-year picture of how our economy has changed.

Learn more about the Dow Jones from the Wall Street Journal by clicking here.

 

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