Dow Jones Industrial Average: one of the world's most followed stock market indices

The Dow Jones Industrial Average - also known as the DJIA, the Dow 30, the Industrial Average, the DJI and even just the Dow - is a major stock market index, one of those established by the co-founder of Dow Jones & Company, Charles Dow.

The index dates back to 1885 and is part of the S&P Dow Jones indices. In addition, it's the second-oldest American stock index, (the oldest (the Dow Jones Transportation Average) was also created by Dow.)

The Industrial Average index reveals how 30 of the largest public companies based in the USA traded on a standard trading session. The term "Industrial" in the title is a relic of history, because most of the modern companies in the index are now unrelated to traditional heavy industries.

The average is price weighted and is currently a scaled average to account for the effects of stock adjustments and splits. The value of the index doesn't represent the actual average of the prices of the stocks that make it up, but rather the sum of the prices of its components once they have been divided by a divisor which helps generate a consistent value for the index. At present, the divisor is below 1, so the value of the index is greater than the total of the prices that make it up.

The Dow Jones Industrial Average was designed to assess the performance of the US industrial sector in terms of its national economy. However, its current performance is influenced by a range of factors, including domestic and foreign political events such as terrorism, war and natural disasters, as well as economic and corporate relationships.

The Dow Jones Industrial Average is one of the world's most followed indexes, and is considered one of the best indicators of how the US stock market is doing.

The Dow Jones Industrial Average: a brief history

Charles Dow created the first Dow Jones Transportation Average in 1885. His first industrial stock average was calculated in 1887, and it was the start of the Dow Jones Industrial Average, which originally consisted of 13 industrial companies.

When it was first released, the index level was 62.75, and during its first run it saw many significant price movements as the country's industrial economy neared maturity. It was in 1927 that the number of stocks making up the index was increased to 30, and over the next 20 years, the level of the index fluctuated wildly due to the conflicts of that time, notably World War II. During the 1950s, the Dow began to climb higher and higher, despite the Cold War and two recessions during this period. By the end of the 1950s, the Dow had reached a level of 617.

Despite the economic uncertainties of the 60s and 70s, the Dow continued to make respectable gains, soaring above the 1,000 mark for the first time in 1973 - a brief high, as the 1973-1974 stock market crash caused almost half of its value to drop, falling to 577.59.

Throughout the end of the decade and until the recession of the early 80s, the index went up and down many times until the 90s saw the advent of the dot-com boom. In 1995, the DJIA first crossed the 5,000 point mark and continued to climb to over 8,000 points in July 1997, while in 1999 celebrations were held in trading floors as the Dow Jones finally hit 10,000 points for the first time.

From 2000 on, the DJIA experienced several downturns in reaction to the 11 September 2001 attacks, the Lehman Brothers bankruptcy and other economic incidents. At the turn of the decade, the Dow experienced some volatility, but it still reached historic highs.

As of this writing (7/1/2021), the Dow has completely erased the decline associated with the Coronavirus situation and now stands at a record-breaking 30,829.

What companies make up the Dow Jones Industrial Average index?

How is the Dow Jones Industrial Average calculated?

The Dow Jones Industrial Average is an index that is price-weighted, not capitalisation-weighted, which means higher-priced stocks carry more weight in it.

When the Dow was created, the index was calculated by adding the prices of the 12 stocks it featured and dividing this total by 12. However, since that time there have been several subtractions and additions to the index, splits and mergers of shares to be taken into account.

Whenever such an event occurs, the index's divisor is adjusted so that its value isn't impacted.

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