The Dow Jones Industrial Average was first established by Wall Street Journal editor Charles Dow in 1896. Its name also incorporated statistician Edward Jones. The index is the second oldest index behind the Dow Jones Transportation Average.
The history of the Dow 30 can be considered a roadmap of the U.S. economy. The Dow components have evolved from the original “Dow Dozen” in 1896 to 30 stocks today, which show investors an overview of how the overall market is performing. In the beginning, the Dow primarily contained stocks in the commodity and steel sectors, including American Sugar, Standard Oil and U.S. Steel. As sectors evolved, the Dow has made a dramatic change to include a more diverse amount of sectors. In fact, many of the original companies have ceased to exist.
Since there are just 30 Dow stocks in the index, a single company has the ability of moving the daily performance of the Dow if its share price changes dramatically. During earnings season, many companies see a large fluctuation in price, which can have a big impact on the Dow. Furthermore, the index is price-weighted, meaning it is calculated through a method of simple mathematical averages; the S&P 500, in contrast, is market-cap weighted. Although the purpose of creating an index that would feature the Dow Jones stocks was meant to give investors a general idea of the market’s performance, it faces criticism due to its lack of diversification.
Investors should note that the companies listed in the Dow 30 are often changed. To see a complete history of the Dow component history, please click here.
For more information on the Dow Jones Industrial Average companies, be sure to check out Dividends in Focus: The Dow 30.