Dow Jones Industrial Average

The Dow Jones Industrial, Transportation and Utilities Averages were originally created and maintained by Charles Dow, editor of the The Wall Street Journal. For the sake of continuity, composition changes are rare, and generally occur only after corporate acquisitions or other dramatic shifts in a component’s core business. When such an event necessitates that one component be replaced, the entire index is reviewed. As a result, multiple component changes are often implemented simultaneously.

While there are no rules for component selection, a stock typically is added only if it has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors and accurately represents the sector(s) covered by the average.

Unlike the DJTA and DJUA, which include only transportation and utilities stocks, the DJIA is not limited to traditionally defined industrial stocks. Instead, the index serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods.

Picking the Stocks

The Dow Jones Industrial, Transportation and Utilities Averages are maintained by the Averages Committee, which is comprised of the Managing Editor of The Wall Street Journal, the head of Dow Jones Indexes research and the head of CME Group research. The Averages Committee was created in 2010, when Dow Jones Indexes became part of CME Group Index Services, LLC, a joint venture company owned 90% by CME Group Inc. and 10% by Dow Jones & Company. Each average is reviewed at least once annually, but composition changes are rare for the sake of continuity. (The Dow Jones Industrial Average was the only major index to trace the bear market of the early 21st Century from beginning to end with the same set of component stocks.) Generally, composition changes occur only after mergers, corporate acquisitions or other dramatic shifts in a component’s core business. When such an event necessitates that one component be replaced, the entire index is reviewed. As a result, when changes are made they typically involve more than one component.

While there are no rules for component selection, a stock typically is added only if it has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors and accurately represents the sector(s) covered by the average.

Unlike the DJTA and DJUA, which include only transportation and utilities stocks, the DJIA is not limited to traditionally defined industrial stocks. Instead, the index serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods.

Using the Dow

The Dow Jones Averages are stock market indexes, and as such can be used in three principal ways:

• As a Yardstick

The most common use of an index by investors is to evaluate the performance of their own portfolios on a monthly or quarterly basis. This is the “benchmark” function of an index, and it constitutes the bogey that many investors try to beat with individual stock picks or with mutual funds. There is no official benchmark for the stock market. Each investor chooses his or her own. The only logical requirement is that the benchmark chosen should represent the part of the stock market that is targeted by the investor’s portfolio. For example, if the investor dabbles in large stocks from a variety of industries, the Dow Jones Industrial Average might make a suitable benchmark. But if holdings in that portfolio also include some railroad stocks, say, and utilities, the more appropriate benchmark might be the Dow Jones Composite Average, which includes all stocks in the Industrial, Transportation and Utility Averages.

• As a Barometer

What will happen next? That’s the single important question in the stock market, and there never is an always-reliable answer – just as there isn’t with the weather. But that doesn’t stop people from making predictions. Like barometers measuring rising or falling air pressure, indexes can be used to help form judgments about the direction in which the market is heading, and whether it is moving tentatively or certainly. There are a host of technical and fundamental analytic techniques for this purpose, with indexes playing a major role in many of them. And because the market looms so large in the U.S. economy, some people extrapolate market behavior into indications of general economic vigor and health. One rule of thumb is that the stock market “anticipates” major trends in the economy by about six to nine months. But in the real word, such precise timing doesn’t always hold true. For example, the bear market in stocks began in January 2000, while the economic recession began in March 2001, according to the National Bureau of Economic Research (NBER). The Dow Jones Industrial Average, which was the only major index to trace the entire bear market with the same component stocks, fell 37.8%, bottoming out in October 2002. Meanwhile, the NBER declared the recession over back in November 2001 (though it didn’t get around to saying so until July 2003).

• Licensing the Averages

Looking to create a distinctive financial product with instant credibility? Dow Jones Indexes licenses the Dow Jones Averages to fund companies, exchanges and others for use in developing index-linked investment products. Available for licensing are the Dow Jones Industrial, Transportation, Utility and Composite Averages, as well as any of our other indexes. Customized versions of indexes, tailored to institutions’ specific needs, can also be created for licensing purposes.

Dow Jones Industrial Average Overview

Roughly two-thirds of the DJIA’s 30 component companies are manufacturers of industrial and consumer goods. The others represent industries as diverse as financial services, entertainment and information technology. Even so, the DJIA today serves the same purpose for which it was created – to provide a clear, straightforward view of the stock market and, by extension, the U.S. economy.

When Charles H. Dow first unveiled his industrial stock average on May 26, 1896, the stock market was not highly regarded. Prudent investors bought bonds, which paid predictable amounts of interest and were backed by real machinery, factory buildings and other hard assets.

Today, stocks are widely accepted as investment vehicles, even by conservative investors. The circle of investors has widened far beyond the Wall Street cliques of the past to millions of everyday working men and women. These people are turning to stocks to help them amass capital for their children’s college tuition bills and their own retirements. Information to guide them in their investment decisions is now abundantly available.

The Dow Jones Industrial Average played a role in bringing about this tremendous change. One hundred years ago, even people on Wall Street found it difficult to discern from day to day whether the wider stock market was rising, falling or treading water. Charles Dow devised his stock average to make sense out of this confusion. He began in 1884 with 11 stocks, most of them railroads, which were the first great national corporations. He compared his average to placing sticks in the beach sand to determine, wave after successive wave, whether the tide was coming in or going out. If the average’s peaks and troughs rose progressively higher then a bull market prevailed; if the peaks and troughs dropped lower and lower, a bear market was on.

It seems simplistic nowadays with the array of market indicators in the public eye, but late in the nineteenth century it was like turning on a powerful new beacon that cut through the fog. The average provided a convenient benchmark for comparing individual stocks to the course of the market, for comparing the market with other indicators of economic conditions, or simply for conversation at the corner of Wall and Broad Streets about the market’s direction.

The mechanics of the first stock average were dictated by the necessity of computing it with paper and pencil: Add up the prices and divide by the number of stocks. This application of grade-school arithmetic, while creative, is hardly useful more than a century later. But the very idea of using an index to differentiate the stock market’s long-term trends from short-term fluctuations deserves a salute. Without the means for the ordinary investor to follow the broad market, today’s age of financial democracy (in which millions of employees are actively directing the investment of their own future pension money and as a result are substantial corporate shareholders) would be unimaginable.

Following the introduction of the 12-stock industrial average in the spring of 1896, Mr. Dow, in the autumn of that year, dropped the last non-railroad stocks in his original index, making it the 20-stock railroad average. The utility average came along in 1929 (more than a quarter-century after Mr. Dow’s death at age 51 in 1902) and the railroad average was renamed the transportation average in 1970.

At first, the average was published irregularly, but this changed with the daily publication in The Wall Street Journal, which began on Oct. 7, 1896. In 1916, the industrial average expanded to 20 stocks; the number was raised again, in 1928, to 30, where it remains. Also in 1928, the Journal editors began calculating the average with a special divisor other than the number of stocks, to avoid distortions when constituent companies split their shares or when one stock was substituted for another. Through habit, this index was still identified as an “average.”

The 30 stocks now in the Dow Jones Industrial Average are all major factors in their industries, and their stocks are widely held by individuals and institutional investors. As of December 31, 2008, The Dow® represented 27% of the float-adjusted market capitalization of the Dow Jones U.S. TSM Index, which provides near complete coverage of the U.S. stock market.

Using such large, frequently traded stocks provides an important feature of the Industrial Average: timeliness. At any moment during the trading day, the price of the Dow Jones Industrial Average is based on very recent transactions. This isn’t always true with indexes that contain less-frequently traded stocks.The Dow Jones Industrial Average is the most-quoted market indicator in newspapers, on television and on the Internet. Because of its longevity, it became the first to be quoted by other publications. This practice became habit when Wall Street earned at least a mention in the general news each day, and habit became tradition when the post-World War II bull market commanded the nation’s attention. The Industrial Average became the indicator to cite if you were citing only one. Besides longevity, two other factors play a role in its widespread popularity: It is understandable to most people, and it reliably indicates the market’s basic trend.

The Dow Jones Industrial Average currently consists of the following 30 major American companies

Dow Jones History

From a niche news agency in an obscure Wall Street basement to a global news and business-information leader, the vision at Dow Jones & Company has been consistent and defining for more than a century. Excellence, integrity and innovation are the qualities which started the company in 1882, which sustained its growth in the 20th Century and which guide its progress as it pioneers new approaches to business and journalism in the digital age.

• 1882-1902 – Founders and Foundation

The foundation for success is laid by Charles Dow, Edward Jones and Charles Bergstresser who over two decades conceive and commence three products which define Dow Jones and financial journalism: The Wall Street Journal, Dow Jones Newswires and the Dow Jones Industrial Average. The founders state their commitment to excellence in the Journal’s first issue: “We appreciate the confidence reposed in our work. We mean to make it better.”

• 1882

Dow, Jones & Company’s first product is brief news bulletins hand-delivered throughout the day to traders at the stock exchange. Those “flimsies” as they are called later are aggregated in a printed daily summary called the “Customer’s Afternoon Letter.”

• 1889

The first edition of The Wall Street Journal is published July 8. An afternoon newspaper, it covers four pages and sells for two cents.

• 1896

The Dow Jones Industrial Average is officially launched.

• 1897

The Ticker, the real-time newswire and the fundamental source for news in the investment community, is announced.

• 1898

The Journal, now six pages, adds a morning edition.

• 1899

The Journal’s “Review & Outlook” column, which still runs in the Journal today, appears for the first time. It initially was written by Charles Dow.

• 1902 – 1941 – Professionals and Progress

Dow Jones is acquired in 1902 by the leading financial journalist of the day, Clarence Barron. Over the next 30 years, Barron recruits and develops a generation of journalists who further Dow Jones’s reputation for excellence. Those journalists would lead the company successfully through the Great Depression and into a new era of prosperity and progress.

• 1921

Barron’s, America’s premier financial weekly, is founded; its first editor is Clarence Barron.

• 1926

A motor-driven version of the “Ticker” – a key innovation in the delivery of real-time news – was developed by the Dow Jones engineering department.

• 1929

The first issue of the Pacific Coast Edition of the Journal rolls off the presses on Oct. 21, eight days before the great stock-market crash.

• 1930

Dow Jones is incorporated in New York.  It is now known as Dow Jones & Company after the comma is dropped from the former Dow, Jones & Company.

• 1934

Afternoon edition of the Journal ceases.

Chief Executive Officer Casey Hogate begins a series of changes during the next decade that ultimately result in the metamorphosis of the Journal into a new kind of daily newspaper. One of these changes is advent of the “What’s News” column. Created by Bernard “Barney” Kilgore, that column was the first major summary of the news, a precursor to omnipresent summaries and digests on the Internet today

• 1941-1967 – The Journal’s Genius

Barney Kilgore takes over as managing editor of the Journal in 1941 and as CEO of Dow Jones in 1945, setting the company on a new and revolutionary course. In print, Dow Jones isn’t satisfied reporting “what happened”; our publications redefine journalism to include “what it means.” In business, the Journal would harness new technologies such as microwaves to open new markets to readers in distant cities.

• 1947

The Journal wins its first Pulitzer Prize for editorials by William Henry Grimes.

• 1948

The Journal launches a Southwest edition

• 1950

The Journal launches a Midwest edition

• 1953

When the New York Stock Exchange cancels its Saturday trading session, the Journal ceases publication of a Saturday edition

• 1962

Making innovative use of microwave technology, Dow Jones is able to reproduce newspaper pages by facsimile over long distances – a vital step toward a truly national newspaper

• 1966

Now with regional editions spanning the U.S., the Journal counts more than one million subscribers for the first time

• 1967–2007 – Innovation and Globalization

Innovation would define Dow Jones in the 40 years after Kilgore’s death in 1967 as the news moved into space and online. Dow Jones pioneered the use of satellites to transmit newspaper pages and make possible a daily newspaper on truly national scale. A decade before the Internet, Dow Jones was storing and coding its news digitally so that it could be accessed online. Factiva’s content and technology tools set the standard for innovation and quality in the news and information industry. The Journal, Newswires and Dow Jones Indexes built successful franchises in Europe and Asia.

• 1967

Dow Jones Newswires begins a major expansion outside the U.S. that ultimately puts journalists in every major financial center in Europe, Asia, Latin America, Australia and Africa.

• 1970

Dow Jones buys the Ottaway newspaper chain, which at the time comprised nine dailies and three Sunday newspapers.

• 1971

A joint venture with Bunker Ramo is the advent of electronic delivery of news from Dow Jones Newswires in an age before personal computers. It would also mark the company’s pioneering efforts to store news and information electronically, a business that would evolve into Factiva.

• 1976

The Asian Wall Street Journal is launched.

• 1983

The Wall Street Journal Europe is launched.

• 1995

The initial version of the WSJ.com appears online. Content won’t be all that distinguishes the Journal on the Web. Dow Jones insists that its differentiated content is worth paying for and thus built the Internet’s most successful paid news Web site.

• 1997

The Dow Jones Industrial Average is licensed for the first time, setting in motion a successful new business called Dow Jones Indexes.

• 2005

MarketWatch is acquired, adding a key component to what will become the Wall Street Journal Digital Network

The Journal resumes publication on Saturday with the debut of Weekend Edition.

• 2006

Factiva is acquired, extending the company’s suite of business-to-business products.

• 2007

Dow Jones is acquired by News Corp., the world’s most global media company.

• 2008 and onwards

After News Corp. acquires Dow Jones in December 2007, and the horizons expand again. Now part of a global media company which includes Fox, SKY, HarperCollins and newspapers from London to Sydney, Dow Jones reinvents the Journal for a new era of news. Now the Journal covers more political and general news along with its leading business coverage. Fresh investment delivers new game-changing business intelligence tools as well as new markets in Europe and Asia. At a time when other media companies are retrenching, Dow Jones is moving aggressively to build on the success of the past and to capture the opportunity of the future.

• 2008

The Journal is reconceived as a more complete source of news with expanded coverage of national and international events as well as more opinion, culture and sports.

Audiences expand. In addition to growth in paid circulation at the Journal, there are new local language products from Newswires in Spanish, Dutch and Arabic.
WSJ., the Journal’s glossy lifestyle magazine debuts world-wide.

• 2009

Ottaway Newspapers Inc. is renamed the Dow Jones Local Media Group.
The company moves its headquarters to midtown Manhattan where at 1211 Avenue of the Americas it joins its sister companies at News Corp. under one roof.
The Journal launches a Japanese-language website.

• 2010

Dow Jones tightens its focus on its core news and information business with the contribution of its Indexes unit to a joint venture operated by CME Group.

The Journal expands its print and digital offerings with a regional section called Greater New York, an enhanced weekend publication called WSJ Weekend and new editions for users of tablet computers.

Dow Jones installs a 4.1 megawatt solar power system at its South Brunswick, N.J., campus. It is the largest solar power system at a U.S. corporate site when it begins operations.

• 2011

The launch of DJ FX Trader marks a significant new presence for Dow Jones in the foreign-exchange market.

• 2012

The Wall Street Journal launches a German-language edition. Dow Jones now publishes news in a dozen languages around the world.

Calculating the Averages

Back in 1896, all Charles Dow needed was a pencil and paper to compute the industrial average. He simply added up the prices of the twelve stocks and then divided by 12. In 1923, the task of working the numbers fell to Arthur “Pop” Harris, who had been hired in 1908 at the age of 22.

In 1896, when Charles Dow scribbled his first simple calculation, no one could have imagined that over the next century his “averages” would become the key benchmark to the nation’s economy. For the next 40 years, Pop calculated the Dow Jones average every hour on the hour for the Dow Jones News Service. On busy trading days, he sometimes bloodied his hands pulling out the ticker tape. Through all those years, the financial world would hold its breath for seven minutes after the New York Stock Exchange’s closing bell, waiting for Pop, who was a small, skinny man, to finish his official calculations on a piece of newsprint.

Pop Harris retired in 1963, and by then the advent of computers made it possible to calculate the Dow Jones averages in a fraction of a second any time of the day. Today, the first step in calculating The Dow is still totaling the prices of the component stocks. But the rest of the math isn’t so easy anymore, because the divisor is continually being adjusted. The reason? To preserve historical continuity. In the past hundred-plus years, there have been many stock splits, spinoffs and stock substitutions that, without adjustment, would distort the value of the Dow. To understand how the formula works, consider a stock split. Say three stocks are trading at $15, $20 and $25; the average of the three is $20. But if the company with the $20 stock has a two-for-one split, its shares suddenly are priced at half of their previous level. That’s not to say the value of the investment has changed; rather, the $20 stock simply sells for $10, with twice as many shares available. The average of the three stocks, meanwhile, falls to $16.66. So, The Dow divisor is adjusted to keep the average at $20 and reflect the continuing value of the investment represented by the gauge.

Over time, the divisor has been adjusted several times, mostly downward (it stood at 0.125552709 at the end of 2008), which means that it has become, in effect, a multiplier. This explains why the average can be reported as, say, 9800, even though the sum of all 30 stock prices is nowhere close to that number. A one-point move in any component stock pushed the average up or down almost eight points at the end of 2008.

“What the divisor does is keep things level with history” says Robert Dickey, a technical stock analyst at Minneapolis-based Dain Rauscher Inc. Current divisors for each of the Dow Jones averages appear on page C4 of The Wall Street Journal every day.

In another effort to preserve continuity, the guardians of the Dow, The Wall Street Journal editors, keep to a minimum any changes in the index’s component stocks. Most substitutions have arisen because of mergers. From time to time, changes also are made to keep The Dow representative of the broad market, which itself shifts in composition.

As the economy has moved from railroads to heavy industry to consumer goods to technology over the past century, the Dow’s component stocks have reflected those changes. Yesteryear’s components, such as Bethlehem Steel Corp., Westinghouse Electric Corp. and Woolworth Corp., have given way to Hewlett-Packard Co., Johnson & Johnson, Microsoft Corp. and Wal-Mart Stores Inc.

Since Charles Dow’s time, several stock-market indexes have challenged the Dow Jones Industrial Average. In 1926, Standard Statistics Co., a predecessor of today’s Standard & Poor’s Corp., developed a 90-stock index that by the 1950s had evolved into the S&P 500, a benchmark widely used today by professional money managers. Today, there are thousands of indexes, tracking everything from broad markets to tiny slivers to investment strategies.

Dow Jones Industrial Average Milestones

Dows Worst Years

The Dow’s Best Years

Other Dow Jones Indexes

Dow Jones Transportation Average

Transportation is the link between manufacturers of goods and the people that buy them. Even online shoppers in cyberspace depend on the trusty UPS or Federal Express trucks for their deliveries. Back in Charles Dow’s day, railroads were the behemoth corporations of America. There are far fewer of them now, because of mergers brought about in large part by increased competition from trucks and airplanes.

The Dow Jones Industrial Average is the best-known U.S. stock index, but not the oldest. The Dow Jones Transportation Average has that honor.

The first Dow Jones stock index, assembled in 1884 by Charles Dow, co-founder of Dow Jones & Company, was composed of the stocks of nine railroad companies, including the New York Central and Union. Pacific, and two nonrailroad companies, Pacific Mail Steamship and Western Union. That was the ancestor of today’s transportation average.

It wasn’t until 1896 that the Dow Jones Industrial Average appeared. The same year, Mr. Dow published a list of 20 “active” stocks, 18 of which were rails—the direct predecessor of the transportation average. On Sept. 8, 1896, it stood at 48.55.

The Global Dow Overview

The Global Dow℠ is a 150-stock index of the most innovative, vibrant and influential corporations from around the world. The underlying philosophy of The Global Dow℠ is much like that of the Dow Jones Industrial Average. For example, the index includes companies with a long history of success, and a wide following among investors. Its components, like those of The Dow, are selected by the Averages Committee, which is comprised of the Managing Editor of The Wall Street Journal, the head of Dow Jones Indexes research and the head of CME Group research. While stock selection is not governed by quantitative rules, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors. Maintaining adequate sector representation within the index is also a consideration in the selection process.

But unlike the Industrial Average, The Global Dow℠ tracks leading companies from around the world—and not just based on size and reputation, but also on their promise for the future. In recognition that global wealth is no longer concentrated in a few countries, The Global Dow℠ has been designed to cover both developed and emerging economies—as well as companies from emerging sectors, such as alternative energy. The index reflects, as closely as possible, the global stock market as it is today, in terms of industries and regions. But emphasis is placed on also representing the global leaders of tomorrow.

The Asia Dow and The Europe Dow Overview

The Asia Dow℠ and The Europe Dow℠ offer local and global investors alike with clear perspective on the regional markets of Asia and Europe. Introduced in 2011, the indexes are maintained according to the same underlying principles and philosophy as the Dow Jones Industrial Average. Each of the indexes is made up of 30 leading blue-chip companies, with the intent of representing the performance of the broader regional stock markets. Eligible for The Asia Dow℠ are stocks traded in the markets of the Asia/Pacific region. The Europe Dow℠ covers stocks traded in the markets of Western Europe.

Both The Asia Dow℠ and The Europe Dow℠ are maintained by the Averages Committee, which is comprised of the Managing Editor of The Wall Street Journal, the head of Dow Jones Indexes research and the head of CME Group research.

Dow Jones Utility Average Overview

Utilities deliver the essential lifeblood of U.S. industry and daily living — electricity and natural gas. In decades past, utility stocks were considered a special segment of the market because state regulators controlled the prices that could be charged. Beginning in the 1990s, utilities have been significantly “deregulated,” spurring both increased competition and large mergers that obliterate old regional identities. The Dow Jones Utility Average is the youngest of the three Dow Jones Averages, having made its debut in January 1929. According to analysts who study the averages, a rise in utility stock prices indicates investors anticipate falling interest rates. That’s because utilities are big borrowers and their profits are enhanced by lower interest costs. Conversely, the utility average tends to decline when investors expect rising interest rates. Because of this interest-rate sensitivity, the utility average is regarded by some as a leading indicator for the stock market as a whole.

Unlike the industrial average, which has undergone more than 100 changes in its nearly 104 years, the utility average has remained largely unaltered. Most of the changes in recent years have been the result of mergers and acquisitions.

Originally, the utility average started with 18 stocks, and six months later, on July 1, 1929, the number was increased to 20. The average was reduced to 15 stocks on June 2, 1938, and has remained at that level ever since.

Dow Jones Utility Average Overview

The Dow Jones Industrial Average℠, Dow Jones Transportation Average℠ and Dow Jones Utility Average℠ are each made up of a select group of prominent stocks. Roll them all together and you have the Dow Jones Composite Average℠—a blue-chip microcosm of the U.S. stock market. The idea of doing so didn’t occur to the editors of The Wall Street Journal until the middle of the Great Depression, five years after they created the Dow Jones Utility Average. The 65-stock index was first published on January 2, 1934.

Dow Jones Composite Average Overview

The Dow Jones Industrial Average℠, Dow Jones Transportation Average℠ and Dow Jones Utility Average℠ are each made up of a select group of prominent stocks. Roll them all together and you have the Dow Jones Composite Average℠—a blue-chip microcosm of the U.S. stock market. The idea of doing so didn’t occur to the editors of The Wall Street Journal until the middle of the Great Depression, five years after they created the Dow Jones Utility Average. The 65-stock index was first published on January 2, 1934.

The Dow Jones High Yield Select 10 Index Overview

The Dow Jones High Yield Select 10 Index℠ aims to track the stock performance of the top ten dividend-paying component companies of the Dow Jones Industrial Average℠. Companies are selected from the DJIA annually based on their indicated annual dividend yield in December. The index is equal-dollar-weighted based on component stock closing prices on the last trading session of the year.

The Dow 5 & The Dow 10 Overview

The Dow 10℠ is a market index constructed as a subset of the Dow Jones Industrial Average℠. Of the 30 stocks in the Industrial Average, the ten with the highest dividend yield are selected as Dow 10 components. The Dow 5℠ contains the five stocks in The Dow 10℠ that have the lowest prices at the end of December.