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 No stock market report is complete without a mention of the Dow Jones Industrials. It's an average that most investors like to talk about, and an index that many use to get a feel for how the market is moving. Not everyone thinks it's as important as it once was, but everyone will agree that it has a rich history and can be exciting to watch.
History of the Dow
The Dow Jones Industrial Average or DJIA was first published on May 26, 1896. At that time, the DJIA represented the average of only twelve stocks - each was carefully selected from an important US industry. Of the original twelve stocks, General Electric is the only stock to stay in the average by avoiding merger, bankruptcy, or a decision that it was no longer a good indicator of the American economy.
On the day that it was first published, the index stood at 40.94. Back then it wasn't really an index at all; it was more of an average. That means it was calculated by adding up all the stock prices of the member companies then dividing by the number of members. By 1916 the industrials had grown to include 20 different stocks and in 1928 it moved to 30 - and it's been at that number ever since.
Dow Jones Industrial Average Milestones
It took 76 years for the DJIA to hit the 1,000 mark. And it went from 10,000 to 11,000 in just one month. On October 19, 2006 the Dow reached one of its more difficult milestones of 12,000 after taking seven years and five months to cross this threshold.
Many investors study the history of the Dow, hoping to learn from the mistakes of the past. Whether it's a bull or bear market, there are scores of analysts tracking the Industrial's every move, trying to figure out where it's going to go next.
Important dates in the history of the Dow include Black Monday during the stock market crash of 1987 in which the Dow dropped 22.6% in just one day. On September 17, 2001 - the first day of trading after September 11th - the Dow fell over 684 points. The stock market crash of 1929 marks another dark time for the Dow - after which it would take another 22 years for the index to reach new highs.
Components of the Dow Jones Industrials
As mentioned earlier, the Dow Jones Industrials is made up of 30 stocks or components. Each component is assigned a percentage that represents its weighting when the average or index is calculated. For example, 3M has a weight of around 5%. That means 5% of the movement in the Dow can be explained by movement in the stock of 3M.
The component weight becomes important when a stock is replaced in the index - which does happen from time to time. By using a component weight, the Industrials can be consistently tracked after the replacement has occurred. Otherwise the entire DJIA would have to be restated to account for the change in just one stock. The stocks of the Dow, along with their approximate component weights appear in the following table:
Dow Jones 30 Components
| Company Name |
Weighting % |
| 3M Co. |
5.28% |
| Alcoa Inc. |
2.62% |
| American Express Co. |
2.79% |
| American International Group Inc. |
2.81% |
| AT&T Inc. |
2.39% |
| Bank of America Corp. |
2.43% |
| Boeing Co. |
5.18% |
| Caterpillar Inc. |
5.09% |
| Chevron Corp. |
5.81% |
| Citigroup Inc. |
1.35% |
| Coca-Cola Co. |
3.92% |
| E.I. DuPont de Nemours &
Co.
|
3.20% |
| Exxon Mobil Corp. |
5.85% |
| General Electric Co. |
2.30% |
| General Motors Corp. |
1.31% |
| Hewlett-Packard Co. |
3.13% |
| Home Depot Inc. |
1.75% |
| Intel Corp. |
1.41% |
| International Business Machines Corp. |
7.84% |
| Johnson & Johnson |
4.27% |
| JPMorgan Chase & Co. |
2.49% |
| McDonald's Corp. |
3.73% |
| Merck & Co. Inc. |
2.79% |
| Microsoft Corp. |
1.90% |
| Pfizer Inc. |
1.41% |
| Procter & Gamble Co. |
4.54% |
| United Technologies Corp. |
4.61% |
| Verizon Communications Inc. |
2.30% |
| Wal-Mart Stores Inc. |
3.39% |
| Walt Disney Co. |
2.10% |
If you want, you can download a spreadsheet of the Dow Jones Industrials Components for free. All of our DJIA member companies and weight are stated as of March 2008.
Criticism of the Industrials' Calculation
Many of today's investors criticize the DJIA because it is a price-weighted average. That means the calculation gives higher-priced stocks more influence over the average than lower-priced stocks. For those of us that are mathematically challenged, this means a $1 increase in a low priced stock of the Industrials can be negated by a $1 decrease in a higher priced stock. Many feel this is misleading as an indicator because the lower priced stock experienced a proportionally larger increase than the higher priced stock's decrease.
Finally, others feel that 30 stocks cannot reasonably be expected to represent overall market conditions or investor sentiment. This feeling has lead many investors and stock market experts to rely on, and believe, the S&P 500 index as a more realistic indicator of the true market performance.
About the Author - Dow Jones Industrials
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