We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Economy

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is the Dow Jones?

By Darrell Laurant
Updated: May 16, 2024
Views: 12,875
References
Share

The Dow Jones industrial average started in a small Wall Street office with a handwritten sheet of paper. That was in 1887, when Charles Dow, Edward Jones and Charles Bergstresser decided that investors needed a running account of how the fledgling stock market was behaving. The first "newsletter" included only 11 stocks -- nine railroads and two other industries.

Within two years, this primitive form of communication had evolved into a printed "Customers' Afternoon Newsletter," which eventually morphed into the Wall Street Journal. The Dow Jones Average made its debut in 1896, and has been a national financial icon ever since. It now includes 30 of the largest publicly held companies, although the roster is no longer strictly industrial.

In some ways, the Dow Jones provides a shorthand version of American economic and social history. On 1 November 1999, for example, it dropped Chevron, Goodyear Rubber, Sears Roebuck and Union Carbide in favor of Intel, Micosoft, Home Depot and SBC Communications. To many observers, this signaled the full bloom of the Internet age and the decline of industry.

A Dow Jones graph also closely follows the rise and fall of the American economy. From 3 September 1929 to 8 July 1932, the index plummeted from 386.1 to 41.22, mirroring the Great Depression. It took 22 years to regain its former altitude. The highest closing ever recorded was 14,164.53 on 9 October 2007, but a subsequent 2008 bust dragged the numbers below 8,000.

Of course, as many analysts point out, the reaction created by ups and downs in the Dow Jones does not always reflect economic reality. For example, if the stock in which you are heavily invested is not one of the Dow Jones 30, the number breathlessly reported on the nightly news is largely irrelevant. The index is a specific x-ray of one segment of the economy, not a complete CAT scan.

Also, because the index is price-weighted, a significant slump in one high-priced stock, which may be caused by a situation irrelevant to the rest of the index, can negate gains in a number of lower-priced public offerings. The Dow Jones price average is also configured to reflect such phenomena as stock splits. Thus, the Dow Jones average times 30 will sometimes produce a lower number than the closing Dow numbers.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Discussion Comments
By Soulfox — On Jan 18, 2015

@Markerrag -- But the Dow Jones index does have something to do with your stock. For one thing, it reveals the state of the overall economy. If the Dow Jones average drops, the chances are good your stock will drop in value, too.

Granted, that is only partially true because the Dow Jones provides a decent shot of the overall economy. When the Dow Jones drops, that also affects other stocks because people do panic a bit and start selling. Some of that panic directly impacts stocks that are not part of the Dow.

In other words, the Dow does reflect some things about the economy. But it also encourages people to behave a certain way. If the Dow is down, people will panic and the overall stock market will be down. If it goes up, the stock market will also increase as investors get happy and start spending money.

By Markerrag — On Jan 17, 2015

You are darn right that the Dow Jones index is not relevant to a lot of people. How many people really invest in the companies that make up that index? Most of them don't and, for that reason, the Dow is not an accurate indicator of anything.

But, that is often the case when it comes to stocks, huh? Unless it has something to do with your particular investment, why on earth should you care about it?

Share
https://www.smartcapitalmind.com/what-is-the-dow-jones.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.