The Dow Jones Industrial Average, often referred to as ‘the Dow’, is a price-weighted index that tracks the value of 30 publicly-owned companies listed on the NASDAQ and the New York Stock Exchange (NYSE). It is represented in real-time by the Dow price.
The Dow Jones index has become something of a microcosm for global financial markets, as it has grown to become one of the oldest and most-watched indices in the world. It is often seen by investors and media commentators as an overall summary of the performance of the US stock market.The index includes some of the world’s largest companies by market capitalisation, including Apple (AAPL), ExxonMobil (XOM) and The Walt Disney Company (DIS), thus making Dow trading popular with many of our clients.
Dow Jones trading hours
Dow companies are all listed on the New York Stock Exchange (NYSE) or the NASDAQ, both of which trade between 09:30 and 16:30 EST each weekday.
How is the Dow calculated?
Unlike other major indices such as the FTSE 100 or the NASDAQ 100, the Dow is a price-weighted index, meaning stocks with higher share prices are given a greater weight in the index.
In order to calculate the Dow, the sum of the prices of all 30 stocks listed on the index is divided by a divisor, called the ‘Dow Divisor’.
Over time, the divisor has been adjusted to account for additions and subtractions – like mergers and stock splits– that have affected the index, ensuring that the Dow’s numerical value is not affected.
For example, on 26 June 2018, the Dow Divisor stood at 0.14748071991788. At this value, every $1 change in price in a particular stock within the average equates to a 6.781 (or 1 ÷ 0.14748071991788) price movement.
History of the Dow Jones Industrial Average
The Dow Jones Industrial Average dates back to 26 May 1896 when Charles Dow, founder of Dow Jones and Co. and then editor of The Wall Street Journal, first compiled and published the average to serve as an indicator of American stock market performance.
Dow calculated what became the first average out of 12 purely industrial stocks, none of which remain as part of the index. General Electric, which is still in operation and was part of the original average, was removed from the index in 2018.
The largest one-day percentage gain on the Dow Jones index took place during the 1930s bear market. It gained 8.26 points and closed at 62.10 on 15 March 1933.
The Dow hit its current record of 26,833.5 on 3 October 2018.
Dow-named indices have expanded over the years to include the Dow Jones Transportation Average and the Dow Jones Utility Average.
Components of the Dow Jones Industrial Average
There are no specific rules for a company to be included in the 30 company stocks in the DJIA. However, for a company to appear in the DJIA, it must account for a significant portion of the economic activities in the US. The company must also be listed on the NASDAQ or NYSE and be among the major companies in the industrial sector.
The DJIA makes numerous changes to its components to reflect changes in the economy. Recent changes that occurred include:
- March 2015, Apple replaced AT&T
- September 2017, DowDuPont replaced DuPont. (Following the merger of Dow Chemical Company and DuPont)
- July 2018, Wallgreens Boots Alliance Replaced General Electric