What is Dow Jones?
The Dow Jones Industrial Average (DJIA) is a price-weighted stock market index tracking the share price movements of 30 publicly traded, blue-chip companies.
Table of Contents
- What Does the Dow Jones Index Indicate?
- Dow Jones Industrial Average (DJIA): Index Methodology
- Who were the “Original 12” Companies?
- Dow Jones Index (DJIA): List of 30 Companies
- Dow Jones Structure (DJIA): Price-Weighted Index
- What is the Dow Divisor?
- Dow Jones (DJIA) vs. S&P 500 Index: What is the Difference?
- DJIA Stock Price: What is the Dow Jones Index at Today?
What Does the Dow Jones Index Indicate?
Established in 1896, the Dow Jones Industrial Average (DJIA), or simply the “Dow Jones”, was one of the first stock indices created to serve as a performance indicator of the stock market.
Currently, the Dow Jones Index ($DJIA) has remained one of the most widely followed indicators of stock market performance.
- Structure → Price-Weighted Index
- Constituents → 30 Companies
- Index Quote → DJIA
- Bloomberg Ticker Symbol → $INDU.DJI
In practice, the Dow Jones (DJIA) functions as a “barometer” to grasp the conditions in the U.S. stock market (and economy) at present, which in turn, is used to form an opinion on the outlook of the markets.
The Dow Jones index (DJIA) tracks thirty large-cap, public U.S. companies and is used as a proxy to measure the current state of the broader financial market as a whole (and economy).
Despite the fact that the Dow Jones only tracks publicly-traded equities, the performance of the index has broad implications across practically all asset classes, such as the bonds, real estate, and commodities.
Why? Most participants in the stock market are not constrained to investing in publicly-traded equities.
For the sake of managing risk, most investors – especially institutional investors, such as a hedge fund – diversify their portfolio holdings across different asset classes.
Hence, there tends to be a significant flow of capital into gold (i.e. negative beta) and risk-free securities (i.e. government issued bonds) if the near-term outlook on the public markets implies an economic contraction, or recession, could perhaps be on the horizon.
Dow Jones Industrial Average (DJIA): Index Methodology
The Dow Jones (DJIA) is a price-weighted index, contrary to the S&P 500, which is capitalization weighted, i.e. the contribution of an individual security is in proportion to their market capitalization (or “market cap”).
In effect, the stocks with higher share prices can have a disproportionate impact on the performance of the index relative to those with lower share prices.
That attribute, coupled with the fact that the only 30 companies comprise the index, is a common source of criticism, since the overall performance can be concentrated on a select few companies.
For that reason, the sole reliance on the Dow Jones (DJIA) index by itself to gauge the broader market is not recommended – however, that rule applies to all indices, not just the Dow.
Learn More → Dow Jones Fact Sheet (Source: S&P Global)
Who were the “Original 12” Companies?
Originally, the Dow Jones Industrial Average index (DJIA) was composed of merely twelve companies in the industrials sector.
Established by Charles Dow, Edward Davis Jones, and Charles Bergstresser, the “Original 12” that comprised the Dow Jones index were the following companies – which we’ve listed here in alphabetical order:
The “Original 12” Companies
- American Cotton Oil
- American Sugar
- American Tobacco
- Chicago Gas
- Distilling & Cattle Feeding
- General Electric
- Laclede Gas
- National Lead
- North American
- Tennessee Coal and Iron
- U.S. Leather
- U.S. Rubber
Around the period in which the Dow Jones index was created – i.e. post-recession – the Original 12 companies in the Dow were market leaders and considered the most influential companies in their respective fields (e.g. coal, gas, rubber, leather).
However, note the pattern in the fields, where each of the companies operated in the industrial sector.
From the perspective of the founders, tracking the DJIA index was intended to serve as a useful measure of not only the stock market but also the U.S. economy.
Considering the widespread use of the Dow Index across mainstream media today in 2023 – such as Bloomberg, CNBC, Financial Times, and the Wall Street Journal (WSJ) – that objective at inception seems to have been achieved.
Since then, the DJIA index has shifted to expand beyond just the industrial sector to more accurately gauge the health of the entire stock market, despite the name remaining unchanged (i.e. “Industrial Average”).
How to see the trend line of a particular stock
Hi, Robert,
There are plenty of websites (like Yahoo finance) where you can type in a public company ticker symbol and see the changing price of a stock.
BB