Dow Jones Industrial Average (NYSE: DJI), also
called the DJIA, Dow 30, or informally the
Dow Jones or The Dow) is one of several stock
market indices created by nineteenth century Wall Street
Journal editor and Dow Jones & Company co-founder
Charles Dow. Dow compiled the index as a way to gauge the
performance of the industrial component of America's stock
markets. It is the oldest continuing U.S. market index,
aside from the Dow Jones Transportation Average, which Dow
the average consists of 30 of the largest and most widely
held public companies in the United States.
portion of the name is largely historical many of the 30 modern
components have little to do with heavy industry. The average
is price-weighted. To compensate for the effects of stock splits
and other adjustments, it is currently a scaled average, not the
actual average of the prices of its component stocks the sum of
the component prices is divided by a divisor, which changes whenever
one of the component stocks has a stock split or stock dividend,
to generate the value of the index. Since the divisor is currently
less than one, the value of the index is higher than the sum of
the component prices.
popular belief, the DJIA was first published in Customer's
Afternoon Letter, not the Wall Street Journal. It was published on May 26, 1896, and represented the average
of twelve stocks from various important American industries. Of
those original twelve, only General Electric is currently part
of the average. The other eleven were:
Cotton Oil Company, distant ancestor of Bestfoods, now part
Sugar Company, now Amstar Holdings
Tobacco Company, broken up in 1911 antitrust action
Gas Company, bought by Peoples Gas Light in 1897 (now an operating
subsidiary of Integrys Energy Group, Inc.)
& Cattle Feeding Company, now Millennium Chemicals, a division
of Lyondell Chemical Company
Gas Light Company, still in operation as The Laclede Group,
removed from the Dow Jones Industrial Average in 1899
Lead Company, now NL Industries, removed from the Dow Jones
Industrial Average in 1916
- North American
Company, (Edison) electric company broken up in the 1940s
Coal, Iron and Railroad Company in Birmingham, Alabama, bought
by U.S. Steel in 1907
- U.S. Leather
Company, dissolved 1952
States Rubber Company, changed its name to Uniroyal in 1961,
merged private with B.F. Goodrich in 1986, bought by Michelin
When it was
first published, the index stood at 40.94. It was computed
as a direct average, by first adding up stock prices of its components
and dividing by the number of stocks in the index. The Dow averaged
5.3% compounded annually for the 20th century, a record Warren
Buffet called "a wonderful century" when he calculated that
to achieve that return again, the index would need to reach nearly
2,000,000 by 2100. Many of the biggest percentage price moves
in The Dow occurred early in its history, as the nascent industrial
- The index
hit its all-time low of 28.48 during the summer of 1896.
On July 30,
1914, when the New York Stock Exchange closed for the next four
months, the index stood at 71.42. Some historians believe the
Exchange closed because of a concern that markets would plunge
as a result of panic over the onset of World War I. An alternative
explanation is that Secretary of the Treasury, William Gibbs McAdoo
closed the exchange because he wanted to conserve the US gold
stock in order to launch the Federal Reserve System later that
year with enough gold to keep the US on the gold standard. When
the markets reopened on December 12, 1914, the index closed at
74.56. Thus, the War had not had the predicted impact.
In 1916, the
number of stocks in the index was increased to twenty and the
new version of the index was 27% smaller than the old index. Finally,
it was increased to thirty stocks in 1928, near the height of
the "roaring 1920s" bull market. The crash of 1929 and the ensuing
Great Depression returned the average to its starting point, almost
90% below its peak, by July 8, 1932, at its intra-day low of 40.56;
closing at 41.22. The high of September 3, 1929 at 381.17 would
not be surpassed until 1954, in inflation-adjusted numbers. However,
the bottom of the 1929 DJIA crash came just 2 1/2 months later
on November 13, 1929, when intra-day it was 195.35; closing slightly
higher at 198.69.
- The largest
one-day percentage gain in the index, 15.34%, happened on March
15, 1933, in the depths of the 1930s bear market.
- The post-World
War II bull market, which brought the market well above its
1920s highs, lasted until 1966.
- On November
14, 1972 the average closed above 1,000 (1,003.16) for the first
time, during a relatively brief rally in the midst of a lengthy
and especially the 1990s saw a very rapid increase in the average,
though severe corrections did occur along the way.
- The largest
one-day percentage drop since 1914 occurred on "Black Monday",
October 19, 1987, when the average fell 22.61%.
- The largest
one-day percentage gain since the 1930s, 10.15%, occurred two
days later on Wednesday, October 21, 1987 bringing the Dow back
above 2,000 and in line for a yearly gain.
- On November
21, 1995 the DJIA closed above 5,000 (5,023.55) for the first
- On March
29, 1999, the average closed above the 10,000 mark (10,006.78)
after flirting with it for two weeks. This prompted a celebration
on the trading floor, complete with party hats.
- On May
3, 1999, the Dow achieved its first close above 11,000 (11,014.70).
of the 2000s brought a significant bear market, followed by indecision
on whether the following bull market represented just a prolonged
cyclical rally or the start of a new secular trend.
- On January
14, 2000, the DJIA reached a record high of 11,750.28 in trading
before settling at a record closing price of 11,722.98; these
two records would not be broken until October 3, 2006.
- The largest
one-day point gain in the Dow, an advance of 499.19, or 4.93%,
occurred on March 16, 2000, as the broader market approached
- The largest
one-day point drop in DJIA history occurred on September 17,
2001, the first day of trading after the September 11, 2001
attacks, when the Dow fell 684.81 points, or 7.1%. By the end
of that week, the Dow had fallen 1,369.70 points, or 14.3%.
A recovery attempt allowed the average to close the year above
- By mid-2002,
the average had returned to its 1998 level of 8,000.
- On October
9, 2002, the DJIA bottomed out at 7,286.27 (intra-day low 7,197.49),
its lowest close since October 1997.
- By the
end of 2003, the Dow returned to the 10,000 level.
- On January
9, 2006 the average broke the 11,000 barrier for the first time
since June 2001.
- In October
2006, four years after its bear market low, the DJIA set fresh
record theoretical, intra-day, daily close, weekly, and monthly
highs for the first time in almost seven years, closing above
12,000 for the first time on the 19th anniversary of Black Monday.
- On February
27, 2007, the Dow Jones Industrial Average fell 3.3% (415.30
points), its biggest point drop since 2001. This move was part
of a correction that eventually reached below the 12,000 level.
It foreshadowed increased levels of volatility not seen since
March 2003, including routine 1% moves and occasional moves
of greater than 2% in a single session, which continued throughout
the year. The initial drop was caused by a global sell-off after
Chinese stocks experienced a mini-crash.
- On April
25, 2007, the Dow passed 13,000 in trading and closed above
the milestone for the first time. Less than three months later,
on July 19, the average set an all-time closing high above the
14,000 level: the fastest 1,000-point advance for the index
- On July
26, 2007, the DJIA experienced a 450 point intraday loss, followed
by a partial recovery of 311.50 points, to close at 13,473.57.
This came on the heels of turbulence in the U.S. sub-prime mortgage
market and the soaring value of the Yuan.  The move initiated another correction falling
below the 13,000 mark, about 10% from the highs.
- On September
18, 2007, the Federal Reserve cut its overnight interest rate
and discount rate targets by half a percentage point each to
4.75% and 5.25%, respectively. In response, the Dow gained 335.97
points (2.5%), its largest one-day jump since October 15, 2002
and its biggest percent rise since April 2, 2003.
- On March
11, 2008, stocks rallied as investors welcomed news that the
Federal Reserve will lend up to $200 billion to banks and lenders
as a means of loosening up tight credit markets. It was Dow's
best day since July 2002.
With the current
inclusion of only 30 stocks, some, such as Ric Edelman argue,
the DJIA is not a very accurate representation of the overall
market performance even though it is the most cited and most widely
recognized of the stock market indices. Historically, though,
it has performed very much in line with the broader U.S. market.
the DJIA is criticized for being a price-weighted average, which
gives relatively higher-priced stocks more influence over the
average than their lower-priced counterparts. For example, 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. As of November 2007 IBM is the highest
priced stock in the index and therefore has the greatest influence
on it. Many critics of the DJIA recommend the float-adjusted market-value
weighted S&P 500 or the Dow Jones Wilshire 5000, the latter of which includes all U.S.
securities with readily available prices, as better indicators
of the U.S. market.
with the Dow is that not all 30 components open at the same time
in the morning. On the days when not all the components open at
the start, the posted opening price of the Dow is determined by
the price of those few components that open first and the previous
day's closing price of the remaining components that haven't opened
yet; on those days, the posted opening price on the Dow will be
close to the previous day's closing price (which can be observed
by looking at Dow price history) and will not accurately reflect
the true opening prices of all its components. Thus, in terms
of candlestick charting theory, the Dow's posted opening price
cannot be used in determining the condition of the market.
included in the DJIA
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 scale factor used
to calculate the index is also adjusted so that the value of the
average is not directly affected by the change.
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. On December 1, 2005 AT&T returned
to the DJIA as a result of the SBC Communications and AT&T
merger. Altria Group and Honeywell were replaced by Chevron Corp
and Bank of America on February 19, 2008.
The Dow Jones
Industrial Average consists of the following 30 companies:
9, 1976 (as Minnesota Mining and Manufacturing)
1, 1959 (as Aluminum Company of America)
1, 1999 (as SBC Communications)
and Retail banking
Vehicles & Trucks
17, 1997 (as Travelers Group)
Oil & Gas
1, 1928 (as Standard Oil (N.J.))
1991 (as J.P. Morgan & Company)
14, 1939 (as United Aircraft)
the DJIA, the sum of the prices of all 30 stocks is divided by
a divisor. The divisor is adjusted in case of splits, spinoffs
or similar structural changes, to ensure that such events do not
in themselves alter the numerical value of the DJIA. The initial
divisor was the number of component companies, so that the DJIA
was at first a simple arithmetic average; the present divisor,
after many adjustments, is less than one (meaning the index is
actually larger than the sum of the prices of the components).
are the prices of the component stocks and d is the Dow
stock splits or changes in the list of the companies composing
the index alter the sum of the component prices. In these cases,
in order to avoid discontinuity in the index, the Dow divisor
is updated so that the quotations right before and after the event