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What Is The Dow Jones Industrial Average?

The Dow Jones Industrial Average or  DJIA or Dow for short is just one of many measures of how well the U.S. stock market is doing.  It's like taking the U.S. stock market's "temperature".  The DJIA is one number that is published daily by Dow Jones and Company the same people who bring you The Wall Street Journal.  This one number is based on the stock price of 30 very specific companies traded on the New York Stock Exchange.

Currently the Dow is made up of the stock prices of 30 companies but this hasn't always been the case.  When the Dow Jones Industrial Average was first published in May 1896 by Charles H. Dow this stock index was made up of only 12 companies of which General Electric is the only company in the original list remaining today.  Over the course of it's 103 year history many companies have been either added or removed from the index based on how well a specific company represents a part of U.S. industry and how frequently the company's stock is traded.  The Dow Jones Industrial Average was expanded to 20 stocks in 1916 and then to 30 stocks in 1928 where it stands today.

Also in 1928 the index was first calculated using the infamous "divisor".  Before then the index was simply figured by adding the price of each stock and dividing by the number of stocks.  But with companies being added or removed from the list and with stock splits (one share becoming 2 or 3 shares) a more sophisticated means of figuring the index was needed to be able to truely compare the stock index values across time.  Today if you add up the stock prices of the 30 companies in the DJIA you'll find it does not equal the DJIA published.   As of April 1999 the Dow divisor stands at 0.2252.  So if you add up the stock prices and divide by 0.2252 you have the Dow Jones Industrial Average.  If   curious the 30 companies of the DJIA are listed on a separate page.

But with so many other stock indexes being published such as the S&P 500 why is the DJIA so often quoted in the news?  Mostly because it has been around so long and so many people are familiar with this one number and the name.   And with such a long history it's easy to compare how well the stock market of today is doing compared to the stock market of say 1930.  If interested a historical trend of the DJIA can be found here.

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