Dow Jones Industrial Average (DJIA)

The Dow Jones Industrial Average (DJIA) is an index that tracks 30 large, publicly-owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The DJIA is named after Charles Dow, who created it in 1896, and his business partner, Edward Jones.

Often referred to as "the Dow," the DJIA is one of the oldest, single most-watched indices in the world and includes companies such as the Walt Disney Company, Exxon Mobil Corporation and Microsoft Corporation. When the TV networks say "the market is up today," they are generally referring to the Dow.

The Dow Jones Industrial Average was designed to serve as a proxy for the broader U.S. economy. When the index launched, it included just 12 companies that were almost purely industrial in nature. The first components operated in railroads, cotton, gas, sugar, tobacco and oil. It is the second oldest U.S. market index after the Dow Jones Transportation Average.

As the economy changes over time, so does the composition of the index. The Dow typically makes changes when a company becomes less representative of the economy (e.g., a company loses market capitalization due to financial distress) or when a broader economic shift occurs and a change needs to be made to reflect it.

Stocks with higher share prices are given greater weight in the index. So, a higher percentage move in a higher priced component will have more impact on the final calculated value. At the Dow's inception, Charles Dow calculated the average by adding the prices of the twelve Dow component stocks and dividing by twelve with the end result being a simple average. Over time, there have been additions and subtractions to the index, such as mergers and stock splits that had to be accounted for in the index where just calculating the arithmetic mean would not suffice.

This led to the advent of the Dow Divisor, a predetermined constant (though it can be changed if the need should arise) that is used to determine the effect of a one point move in any of the thirty stocks that comprise the Dow. There have been instances (components added or removed, stock splits, etc.) when the divisor needed to be changed so that the value of DJIA stayed consistent. The current divisor can be found in the Wall Street Journal and is: 0.14748071991788.

The key point about the DJIA is that it is not a weighted arithmetic average nor does it represent its component companies' market capitalization as does the S&P 500. Rather, it reflects the sum of the price of one share of stock for all the components, divided by the divisor. Thus, a one point move in any of the component stocks will move the index by an identical number of points.

DJIA = SUM (Component stock prices) / Dow Divisor

The index grew to 30 components in 1928 and has changed components a total of 51 times. The first change came just three months after the index was launched. In its first few years until roughly the Great Depression, there were many changes to its components. In 1932, eight stocks within the Dow were replaced. However, during this change, the Coca-Cola Company and Procter & Gamble Co. were added to the index, two stocks that are still part of the Dow in 2019.

The most recent large scale change to the Dow took place in 1997 when four of the index's components were replaced. Two years later, in 1999, four more components of the Dow were changed. The most recent change took place on June 26, 2018, when Walgreens Boots Alliance, Inc. replaced General Electric Company.

The table below alphabetically lists the companies included in the DJIA as of March 18, 2019:

The following are some of the milestones hit by the DJIA: 

• Mar. 15, 1933: The largest one-day percentage gain in the index happened during the 1930s bear market, totaling 15.34 percent. The Dow gained 8.26 points and closed at 62.10.
• Oct. 19, 1987: The largest one-day percentage drop took place on Black Monday. The index fell 22.61 percent. There were no evident explanations behind the crash, although program trading may have been a contributing factor.
• Sept. 17, 2001: The fourth-largest one-day point drop — and the largest at the time — took place the first day of trading following the 9/11 attacks in New York City. The Dow dropped 684.81 points or about 7.1 percent. However, it is important to note that the index had been dropping before Sept. 11, losing more than 1,000 points between Jan. 2 and Sept. 10. The DJIA, however, started to make traction after the attacks and regained all of what it lost, closing above the 10,000 mark for the year.
• May 3, 2013: The Dow surpassed the 15,000 mark for the first time in history. 
• Jan. 25, 2017: The Dow closed above 20,000 points for the first time.