Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA), usually called "the Dow", is a stock market index that tracks 30 large, well-known companies listed in the United States. Unlike most modern indices it is price-weighted: companies with higher share prices count for more, regardless of how big the companies are. It is published by S&P Dow Jones Indices.

The Dow is one of the oldest stock indices still running. Charles Dow, co-founder of Dow Jones & Company and of The Wall Street Journal, first published it on 26 May 1896 with 12 mainly industrial companies; it grew to 20 stocks in 1916 and to 30 in 1928. Despite its name, it now includes banks, software, health-care and retail companies. Professionals generally prefer the broader S&P 500 as a benchmark, but the Dow remains the index most often quoted in news headlines.

Imagine judging the health of a high street by adding up the price of one item from each of 30 famous shops and dividing by a fixed number. If the bakery's cake costs 40 and the jeweller's ring costs 400, the ring's price swings will move your total far more than the cake's, even if the bakery is the bigger business.

That is how the Dow works. It adds up the share prices of 30 companies and divides the sum by a special number. A company whose single share costs a lot pulls the index more than a larger company whose shares happen to be cheap. It is a quick, simple thermometer with a few known quirks.

The index level is the sum of the 30 share prices divided by the Dow divisor:

• $P_i$ is the share price of company $i$.
• $d$ is the Dow divisor.

Originally the divisor was simply the number of stocks, making the Dow a true average. Each time a member splits its shares, pays a special dividend or is replaced, the divisor is adjusted so that the event does not by itself change the index. After more than a century of such adjustments the divisor has fallen far below one: it was about 0.163 at the end of 2024. That means a 1 dollar move in any member's share price moves the Dow by roughly 6 points.

For example, if the 30 share prices summed to 7,000 and the divisor were 0.16, the Dow would stand at $7{,}000 \div 0.16 = 43{,}750$. If one stock then rose by 10 dollars, the sum would be 7,010 and the index would rise by $10 \div 0.16 = 62.5$ points, whichever company it was.

There are no fixed numeric entry rules. A committee of S&P Dow Jones Indices and The Wall Street Journal selects companies with an excellent reputation, sustained growth and wide investor interest, aiming to reflect the US economy across sectors other than transport and utilities, which have their own Dow averages. Members are typically blue chip stocks and large-cap stocks listed on either the New York Stock Exchange or the Nasdaq.

Changes are infrequent and often reflect shifts in the economy. General Electric, the last remaining member from the early years, was removed in 2018. In November 2024 Nvidia replaced Intel and Sherwin-Williams replaced Dow Inc. Because of price weighting, the committee considers share prices when choosing members: a company with a very high price would dominate the index, and one with a very low price would barely register, so a stock split can affect whether a company is a good fit.

The Dow's long record makes it the usual reference for historic market events. It fell about 22.6% on 19 October 1987, still its largest one-day percentage fall, and lost close to 90% of its value between its 1929 peak and its 1932 low. Its milestones, such as first closing above 10,000 in 1999 and above 40,000 in May 2024, are widely reported, though round numbers carry no economic meaning in themselves.

Investors can track the Dow through an exchange-traded fund, and futures and options contracts on it trade on US exchanges. Its daily moves are often used as shorthand for whether markets are in a bull market or a bear market, and its level is the subject of a large body of market timing lore, including the "Dow Theory" developed from Charles Dow's editorials.

• Price weighting. A company's influence depends on its share price, not its market capitalization, which most economists consider arbitrary.
• Narrow coverage. Thirty companies cannot represent an economy of thousands of listed firms, and smaller companies are absent.
• Price only. The headline figure ignores dividends, so it understates total return to investors over long periods.
• Committee choices. Membership changes reflect judgement rather than rules, which can introduce survivorship bias into its long-run record.

• Dow Jones Industrial Average — S&P Dow Jones Indices