Dow Jones Industrial Average (DJIA)

Key takeaways

• The DJIA tracks 30 large, established U.S. companies (the “Dow 30”) and is often used as a quick gauge of U.S. market sentiment.
• It is a price-weighted index: stocks with higher share prices have greater influence regardless of market capitalization.
• The index is maintained by a committee and its components change over time to reflect the economy.
• The Dow Divisor is an adjustable constant used in the index calculation to account for stock splits, component changes and other corporate actions.

What is the DJIA?

The Dow Jones Industrial Average (DJIA) is one of the oldest and most widely followed U.S. stock indexes. Created by Charles Dow in 1896, it began with 12 industrial companies and expanded to 30 components by 1928. The DJIA is intended to represent the performance of major blue‑chip companies across most sectors of the U.S. economy (excluding utilities and transportation).

How the DJIA is calculated

The DJIA is price-weighted. Its value is the sum of the prices of one share of each component stock divided by the Dow Divisor:

DJIA = Sum of component stock prices ÷ Dow Divisor

The Dow Divisor is a small, regularly adjusted number that preserves continuity of the index through stock splits, component substitutions and other corporate actions. Because the index is price-weighted, a one-point change in a high-priced stock moves the index the same number of points as a one-point change in a low-priced stock.

Components and how they change

• Components are selected by a committee and changed to reflect shifts in the economy, mergers, or prolonged company underperformance.
• The index started with industrial and utility firms but has evolved to include major technology, consumer and industrial companies.
• Notable recent changes:
• 1997–1999: Multiple replacements reflecting a shift toward finance, tech and retail.
• 2018: Walgreens Boots Alliance replaced General Electric.
• 2020: Salesforce, Amgen and Honeywell replaced ExxonMobil, Pfizer and Raytheon Technologies.
• 2024: Amazon joined the Dow (replacing Walgreens); NVIDIA and Sherwin‑Williams were later added, reflecting shifts toward semiconductors and other high-performing sectors.

These adjustments illustrate the committee’s effort to keep the index representative of leading U.S. businesses.

Historical milestones

• March 15, 1933 — largest one‑day percentage gain (about +15.34%).
• October 19, 1987 — Black Monday, largest one‑day percentage drop (−22.61%).
• September 17, 2001 — major decline following the 9/11 attacks.
• March 2020 — rapid crash amid the COVID‑19 pandemic; entered bear market.
• Late 2020–2021 — recovery and successive record highs.
• May 16, 2024 — the Dow surpassed 40,000 for the first time.

Limitations and criticisms

• Small sample size: At 30 companies, the DJIA covers only a tiny slice of the U.S. equity market.
• Price weighting: Stocks with higher share prices have outsized influence regardless of company size, which can misrepresent the true economic weight of companies.
• Committee selection: Additions and deletions are discretionary rather than formulaic, introducing subjectivity.
  For broader market coverage and market‑cap weighting, many investors prefer indexes such as the S&P 500.

How to gain exposure

Investors typically gain exposure to the Dow through index funds and exchange‑traded funds (ETFs) that track the DJIA, such as SPDR’s DIA, rather than holding all 30 stocks directly.

Bottom line

The DJIA remains a prominent and symbolic barometer of U.S. market sentiment and financial history. Its century‑plus track record makes it culturally significant, but its price-weighted structure and limited roster mean it is best used alongside broader, market‑cap‑weighted indexes when assessing the overall health of the U.S. equity market.