Internet Technology Interactive
May 21, 2000
The Dow Jones Industrial Average
With my focus area being in Finance I have decides to write about the Dow Jones Industrial average. I will discuss what the Dow Jones Industrial Average is (DJIA), what companies make up the Dow Jones Industrial Average, major ups and downs of the Dow Jones Industrial Average, and the some of the future predictions of the Dow Jones Industrial average and where it is going.
The Dow Jones Industrial Average is an index of 30 US stocks. At 100 plus years, it is the oldest continuing US market index. It is called an “average” because it originally was computed by adding up stock prices and dividing by the number of stocks. ( the very first average price of industrial stocks, on may 26, 1896, was 40.94.) The methodology remains the same today, but the divisor has been changed to preserve historical continuity. The Dow Jones Industrial Average is the best known market indicator in the world, partly because it is old enough that many generations of investors have become accustomed to quoting it, and partly because the US stock market is the globe’s biggest. The Dow Jones Industrial Average has not always consisted of 30 stocks, it started out as 12 in 1896 and raised to 20 in 1916. The 30-stock average made is debut in 1928, and the number has remained consistent ever since. What makes a stock a Dow Jones Industrial Average stock, well the editors of the Wall street Journal select the components of the industrial average. They take a broad view of what industrial means. n essence, it is almost any company that isn’t in the transportation business or isn’t a utility (because there also are Dow Jones Averages for those kinds of stocks). In choosing a new company for the Dow Jones Industrial Average, they look among substantial industrial companies with a history of successful growth and wide interest among investors. The components of the Dow Jones Industrial Average are not changed often. It isn’t a “hot stock” index, and the Journal editors believe that stability of composition enhances the trust that many people have in the averages. The most frequent reason for changing a stock is that something is happening to one of the components, such as a being acquired. whenever one stock is changed, the rest are reviewed. The most recent changes in the components of the Dow Jones Industrial Average, effective with trading Monday, November 1, 1999.
The following four companies were deleted from the Dow Jones Industrial Average:
Union Carbide Corp., which had been in the Dow Jones Industrial Average since 1928
Goodyear Tire & Rubber Co., which had been in the Dow Jones Industrial Average since 1930
Sears, Roebuck & Co., which had been in the Dow Jones Industrial Average since 1924
Chevron, which had been in the Dow Jones Industrial Average since 1984
The following four companies were added to the Dow Jones Industrial Average:
Home Depot Inc.,
Microsoft Depot Inc., Corp.,
These changes were the first Dow Jones Industrial Average components changes since March 7, 1997, when Hwelett-Packard, Johnson & Johnson, Travelers Group (now Citigroup) and Wal-Mart stores replaced Woolworth, Westinghouse Electric, Texaco, and Bethlehem steel.
When a stock is removed from the Dow Jones Industrial Average, it doesn’t mean that it cannot return, over the years several stocks have been added and removed more than once, particularly in the early years. For example General Electric, one of the original 12 stocks in the Industrial average, was taken out in 1898, restored in 1899, taken out again in 1901 and the reinstated in 1907; it has remained in the Dow Jones Industrial Average ever since. US Rubber and DuPont also were in the average more than once. Since the average expanded to 30 stocks in 1928, a noteworthy example was International business machines. It first joined the average in 1932, replacing National Cash Register. In 1939, IBM was dropped in favor of American Telephone & Telegraph, and it didn’t rejoin the Dow Jones Industrial Average until 1979.
The 30 stocks now in the Dow Jones Industrial average are all major factors in their industries, and their stocks are widely help by individuals and institutional investors. These 30 stocks represent about a fifth of the $ 8 trillion-plus market value of all US stocks and about a fourth of the value of the Stocks listed on the New York Stock exchange.
Using such large, frequently traded stocks provides an important feature of the industrial average: timelessness. At any moment during the trading day, the Dow Jones Industrial Average is based on very recent transactions. This isn’t always true with indexes that contain less frequently traded stocks.
Following are the 30 current companies that make up the Dow Jones Industrial Average along with the Symbol they are traded under and the weighting they have on the Dow Jones Industrial Average. If you were to total the weighting of the 30 companies you would come up with 100%.
The Dow Jones Industrial Average has had a number of milestones since its birth, here are some of the more memorable.
January 12, 1906 Dow closed above 100 (100.25)
October 28, 1929 The Dow drops 38.33 points (260.64) in what many have since termed the beginning of the Great Depression
March 12, 1956 Dow closes above 500 (500.24)
November 14, 1972 Dow Closes above 1,000 (1003.16)
August 17, 1982 Dow climbs 38.81 (831.24). its biggest ever one day gain, signaling the start of the ‘80’s bull market.
January 8, 1987 Dow breaks the 2000 mark for the first time (2002.25)
October 16, 1987 The Dow falls 108.35 to 2246.73. The first time the Dow has ever fallen 100 points
October 19, 1987 The Dow plunges 508 to 1738.74 in what has become known as “Black Monday”.
January 2, 1990 Dow sets a new record at 2810.15. The first new all time high since October 1987.
April 17, 1991 Dow closes over 3000 (3004.46)
May 19, 1993 Dow closes over 3500 (3500.03)
February 23, 1995 Dow closes over 4000 (4003.33)
March 16, 1999 Dow finally crosses the 10,000 level but fails to close above the magic number.
March 29, 1999 After teasing investors three times since it initially crossed the 10,000 level, the Dow closes above 10,000 mark.
No one knows for sure where the stock market and the Dow Jones Industrial Average is headed for sure. Some people make predictions about where the stock market is headed based in part on their interpretation of the Dow Jones Industrial Average movements, as well as movements of the transportation and utilities averages. But indexes don’t predict anything. They are doing their job if they accurately reflect where the market has been. As for the Dow Jones Industrial Average foretelling the US Economy is not reliable. There is a great deal of common ground between the economy and the market. Stock investors try to anticipate future profits, and corporate profits are a prime fuel for the US economic engine. So, not suprisingly, the market frequently rises ahead of economic expansion and falls prior to economic slowdown or contraction. Trouble is, this relationship isn’t finely correlated; there are other factors that move markets and still others that affect the economy. Moreover, many people make the mistakes of calibrating their economic expectations to the Dow Jones Industrial Average movements. The result, as Nobel-laureate economist Paul A. Samuelson put it: “The market has predicted none of the last five recessions.
Raymond James, About Raymond James Financial. Pages 1 -9
History of the Dow Jones Industrial Average. Page 1-2
DJIA Stocks. Pages 1-11