What is the Dow Jones?

Dow Jones Industrial Average (NYSE: DJI, also called DJIA, Dow 30, or informally the Dow Jones index or the Dow) is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company 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. Today, the average consists of 30 of the largest and most widely held public companies in the United States.
The "industrial" portion of the name is largely historical - many of the 30 modern components have little to do with heavy industry. 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 actual average of prices is multiplied by a scale factor, which changes over time, to generate the value of the index.

History

First published on May 26, 1896, the DJIA represented the average of twelve stocks from various important American industries. Of those original twelve, only General Electric remains part of the average. The other eleven were:

• American Cotton Oil Company, a predecessor of Bestfoods, now part of Unilever
• American Sugar Company, now Amstar Holdings
• American Tobacco Company, broken up in 1911
• Chicago Gas Company, bought by Peoples Gas Light & Coke Co. in 1897 (now Peoples Energy Corporation)
• Distilling & Cattle Feeding Company, now Millennium Chemicals, a division of Lyondell Chemical Company
• Laclede Gas Light Company, still in operation as The Laclede Group
• National Lead Company, now NL Industries
• North American Company, (Edison) electric company broken up in the 1950s
• Tennessee Coal, Iron and Railroad Company, bought by U.S. Steel in 1907
• U.S. Leather Company, dissolved 1952
• United States Rubber Company, changed its name to Uniroyal in 1967, bought by Michelin in 1990

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. Many of the biggest percentage price moves in the Dow occurred early in its history, as the nascent industrial economy matured.

• The index hit its all-time low of 28.48 during the summer of 1896.
• The largest one-day percentage drop in the history of the Dow occurred on December 12, 1914, 24.39%, after a multi-month NYSE hiatus brought on by World War I.

In 1916, the number of stocks in the DJIA was increased to twenty, and finally to thirty 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. The highs of September 3, 1929 would not be surpassed until 1954.

• The largest one-day percentage gain in the index, 14.87%, happened on October 6, 1931, 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, in the midst of a lengthy bear market.

The 1980s 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 22.6%.
• The largest one-day percentage gain since 1932, 10.15%, occurred two days later on Wednesday, October 21, 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 time.
• On March 29, 1999, the average closed at 10,006.78, its first close above the 10,000 mark.
• On May 3, 1999, the Dow closed at 11,014.70, its first close above 11,000.

The uncertainty of the early 2000s brought a significant bear market, and whether it has ended or simply gone into hibernation has been an ongoing subject of debate.

• 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 its top.
• 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 10,000.
• 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, closing at 11,011.90.
• 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 415.30 points, closing at 12,216.96, the biggest point drop since September 17, 2001, the first day of trading after the September 11, 2001 attacks.

The individual 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.
On November 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's original T symbol returned to the DJIA as a result of the SBC Communications and AT&T merger.


See how the Dow Jones is calculated
See a list of DOW companies