The Dow Jones Industrial Average (NYSE: DJI), also called the DJIA, Dow 30, or informally the Dow Jones or The Dow) is one of several stock market indices created by nineteenth-century Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. Dow compiled the index to gauge the performance of the industrial sector of the American stock market. It is the second-oldest U.S. market index, after the Dow Jones Transportation Average, which Dow also created.
The average consists of 30 of the largest and most widely held public companies in the United States. The "industrial" portion of the name is largely historical—many of the 30 modern components have little to do with traditional heavy industry. The average is price-weighted. To compensate for the effects of stock splits and other adjustments, it is currently a scaled average, not the actual average of the prices of its component stocks—the sum of the component prices is divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend, to generate the value of the index. Since the divisor is currently less than one, the value of the index is higher than the sum of the component prices.
The DJIA was first published in Customer's Afternoon Letter.[1] It was published on May 26, 1896, and represented the average of twelve stocks from important American industries. Of those original twelve, only General Electric remains part of the index. The other eleven were:
- American Cotton Oil Company, distant ancestor of Bestfoods, now part of Unilever
- American Sugar Company, now Amstar Holdings
- American Tobacco Company, broken up in 1911 antitrust action
- Chicago Gas Company, bought by Peoples Gas Light in 1897 (now an operating subsidiary of Integrys Energy Group, Inc.)
- Distilling & Cattle Feeding Company, now Millennium Chemicals, a division of Lyondell Chemical Company
- Laclede Gas Light Company, still in operation as The Laclede Group, removed from the Dow Jones Industrial Average in 1899
- National Lead Company, now NL Industries, removed from the Dow Jones Industrial Average in 1916
- North American Company, (Edison) electric company broken up in the 1940s
- Tennessee Coal, Iron and Railroad Company in Birmingham, Alabama, bought by U.S. Steel in 1907
- U.S. Leather Company, dissolved 1952
- United States Rubber Company, changed its name to Uniroyal in 1961, merged private with B.F. Goodrich in 1986, bought by Michelin in 1990.
When it was first published, the index stood at 40.94. It was computed as a direct average, by first adding up stock prices of its components and dividing by the number of stocks in the index. The Dow averaged 5.3% compounded annually for the 20th century, a record Warren Buffett called "a wonderful century"—when he calculated that to achieve that return again, the index would need to reach nearly 2,000,000 by 2100. Many of the biggest percentage price moves in The Dow occurred early in its history, as the nascent industrial economy matured. The index hit its all-time low of 28.48 during the summer of 1896.
On July 30, 1914, when the New York Stock Exchange was closed for the next four months, the index stood at 71.42. Some historians believe the Exchange closed because of a concern that markets would plunge as a result of panic over the onset of World War I. An alternative explanation is that the Secretary of the Treasury, William Gibbs McAdoo, closed the exchange because he wanted to conserve the US gold stock in order to launch the Federal Reserve System later that year with enough gold to keep the US on the gold standard. When the markets reopened on December 12, 1914, the index closed at 54, a drop of 24.39%.
In 1916, the number of stocks in the index was increased to twenty and the new version of the index was 27% smaller than the old index. Finally, it was increased to thirty stocks in 1928, near the height of the "roaring 1920s" bull market. The crash of 1929 and the ensuing Great Depression returned the average to its starting point, almost 90% below its peak, by July 8, 1932, at its intra-day low of 40.56; closing at 41.22. The high of 381.17 on September 3, 1929, would not be surpassed until 1954, in inflation-adjusted numbers. However, the bottom of the 1929 DJIA crash came just 2 1/2 months later on November 13, 1929, when intra-day it was 195.35; closing slightly higher at 198.69.
The largest one-day percentage gain in the index, 15.34%, happened on March 15, 1933, in the depths of the 1930s bear market.
The post-World War II bull market, which brought the market well above its 1920s highs, lasted until 1966.
The Dow fell 22.61% on Black Monday (1987). Two days later it rose 10.15%.On November 14, 1972 the average closed above 1,000 (1,003.16) for the first time, during a relatively brief rally in the midst of a lengthy bear market.
The 1980s and especially the 1990s saw a very rapid increase in the average, though severe corrections did occur along the way.
The largest one-day percentage drop since 1914 occurred on "Black Monday", October 19, 1987, when the average fell 22.61%.
The largest one-day percentage gain since the 1930s, 10.15%, occurred two days later on Wednesday, October 21, 1987 bringing the Dow back above 2,000 and in line for a yearly gain.
On November 21, 1995 the DJIA closed above 5,000 (5,023.55) for the first time.
On March 29, 1999, the average closed above the 10,000 mark (10,006.78) after flirting with it for two weeks. This prompted a celebration on the trading floor, complete with party hats.
On May 3, 1999, the Dow achieved its first close above 11,000 (11,014.70).
The uncertainty of the 2000s brought a significant bear market, followed by indecision on whether the following bull market represented just a prolonged cyclical rally or the start of a new secular trend.
On January 14, 2000, the DJIA reached a record high of 11,750.28 in trading before settling at a record closing price of 11,722.98; these two records would not be broken until October 3, 2006.
The largest one-day point gain in the Dow, an advance of 499.19, or 4.93%, occurred on March 16, 2000, as the broader market approached its top.
The largest one-day point drop in DJIA history occurred on September 17, 2001, the first day of trading after the September 11, 2001 attacks, when the Dow fell 684.81 points, or 7.1%. By the end of that week, the Dow had fallen 1,369.70 points, or 14.3%. A recovery attempt allowed the average to close the year above 10,000.
By mid-2002, the average had returned to its 1998 level of 8,000.
On October 9, 2002, the DJIA bottomed out at 7,286.27 (intra-day low 7,197.49), its lowest close since October 1997.
The Dow fell 14.3% after the September 11, 2001 attacks. Exchanges were closed between September 10th and September 17th.By the end of 2003, the Dow returned to the 10,000 level.
On January 9, 2006 the average broke the 11,000 barrier for the first time since June 2001.
In October 2006, four years after its bear market low, the DJIA set fresh record theoretical, intra-day, daily close, weekly, and monthly highs for the first time in almost seven years, closing above 12,000 for the first time on the 19th anniversary of Black Monday.
On February 27, 2007, the Dow Jones Industrial Average fell 3.3% (415.30 points), its biggest point drop since 2001. This move was part of a correction that eventually reached below the 12,000 level. It foreshadowed increased levels of volatility not seen since March 2003, including routine 1% moves and occasional moves of greater than 2% in a single session, which continued throughout the year. The initial drop was caused by a global sell-off after Chinese stocks experienced a mini-crash.
On April 25, 2007, the Dow passed 13,000 in trading and closed above the milestone for the first time. Less than three months later, on July 19, the average set an all-time closing high above the 14,000 level: the fastest 1,000-point advance for the index since 1999.
On July 26, 2007, the DJIA experienced a 450 point intraday loss, followed by a partial recovery of 311.50 points, to close at 13,473.57. This came on the heels of turbulence in the U.S. sub-prime mortgage market and the soaring value of the Yuan. The move initiated another correction falling below the 13,000 mark, about 10% from the highs.
On October 9, 2007, the Dow Jones Industrial Average closed at the record level of 14,164.53.
On July 2, 2008, with record-high oil and gasoline prices well above $140 per barrel and $4 per gallon, the Dow Jones Industrial Average closed in bear market territory. Two weeks later, its subsequent close below the 11,000 mark for the first time since 2006 was followed by a 500-point rally that accompanied a three-day 15% correction in energy prices.
On September 15, 2008, the Dow Jones lost more than 500 points for only the sixth time in history after Lehman Brothers filed Chapter 11 bankruptcy, Merrill Lynch was bought by Bank of America, and AIG was begging for extra capital. AIG's stock price dropped more than 60%, and Lehman lost almost 95%. This returned the Average to its mid-July lows below the 11,000 level, although more than 90% of the losses were erased by the end of the week. Kraft Foods replaced AIG in the index on September 22, arguably leaving the index underweighted in financials following the recent turmoil in the stock market. AIG's removal came after a tumultuous week for the insurer; the company was aided by the Federal Reserve through an $85 billion bailout that sought to keep the company from seeking bankruptcy protection.
The DJIA was first published in Customer's Afternoon Letter.[1] It was published on May 26, 1896, and represented the average of twelve stocks from important American industries. Of those original twelve, only General Electric remains part of the index. The other eleven were:
- American Cotton Oil Company, distant ancestor of Bestfoods, now part of Unilever
- American Sugar Company, now Amstar Holdings
- American Tobacco Company, broken up in 1911 antitrust action
- Chicago Gas Company, bought by Peoples Gas Light in 1897 (now an operating subsidiary of Integrys Energy Group, Inc.)
- Distilling & Cattle Feeding Company, now Millennium Chemicals, a division of Lyondell Chemical Company
- Laclede Gas Light Company, still in operation as The Laclede Group, removed from the Dow Jones Industrial Average in 1899
- National Lead Company, now NL Industries, removed from the Dow Jones Industrial Average in 1916
- North American Company, (Edison) electric company broken up in the 1940s
- Tennessee Coal, Iron and Railroad Company in Birmingham, Alabama, bought by U.S. Steel in 1907
- U.S. Leather Company, dissolved 1952
- United States Rubber Company, changed its name to Uniroyal in 1961, merged private with B.F. Goodrich in 1986, bought by Michelin in 1990.
When it was first published, the index stood at 40.94. It was computed as a direct average, by first adding up stock prices of its components and dividing by the number of stocks in the index. The Dow averaged 5.3% compounded annually for the 20th century, a record Warren Buffett called "a wonderful century"—when he calculated that to achieve that return again, the index would need to reach nearly 2,000,000 by 2100. Many of the biggest percentage price moves in The Dow occurred early in its history, as the nascent industrial economy matured. The index hit its all-time low of 28.48 during the summer of 1896.
On July 30, 1914, when the New York Stock Exchange was closed for the next four months, the index stood at 71.42. Some historians believe the Exchange closed because of a concern that markets would plunge as a result of panic over the onset of World War I. An alternative explanation is that the Secretary of the Treasury, William Gibbs McAdoo, closed the exchange because he wanted to conserve the US gold stock in order to launch the Federal Reserve System later that year with enough gold to keep the US on the gold standard. When the markets reopened on December 12, 1914, the index closed at 54, a drop of 24.39%.
In 1916, the number of stocks in the index was increased to twenty and the new version of the index was 27% smaller than the old index. Finally, it was increased to thirty stocks in 1928, near the height of the "roaring 1920s" bull market. The crash of 1929 and the ensuing Great Depression returned the average to its starting point, almost 90% below its peak, by July 8, 1932, at its intra-day low of 40.56; closing at 41.22. The high of 381.17 on September 3, 1929, would not be surpassed until 1954, in inflation-adjusted numbers. However, the bottom of the 1929 DJIA crash came just 2 1/2 months later on November 13, 1929, when intra-day it was 195.35; closing slightly higher at 198.69.
The largest one-day percentage gain in the index, 15.34%, happened on March 15, 1933, in the depths of the 1930s bear market.
The post-World War II bull market, which brought the market well above its 1920s highs, lasted until 1966.
The Dow fell 22.61% on Black Monday (1987). Two days later it rose 10.15%.On November 14, 1972 the average closed above 1,000 (1,003.16) for the first time, during a relatively brief rally in the midst of a lengthy bear market.
The 1980s and especially the 1990s saw a very rapid increase in the average, though severe corrections did occur along the way.
The largest one-day percentage drop since 1914 occurred on "Black Monday", October 19, 1987, when the average fell 22.61%.
The largest one-day percentage gain since the 1930s, 10.15%, occurred two days later on Wednesday, October 21, 1987 bringing the Dow back above 2,000 and in line for a yearly gain.
On November 21, 1995 the DJIA closed above 5,000 (5,023.55) for the first time.
On March 29, 1999, the average closed above the 10,000 mark (10,006.78) after flirting with it for two weeks. This prompted a celebration on the trading floor, complete with party hats.
On May 3, 1999, the Dow achieved its first close above 11,000 (11,014.70).
The uncertainty of the 2000s brought a significant bear market, followed by indecision on whether the following bull market represented just a prolonged cyclical rally or the start of a new secular trend.
On January 14, 2000, the DJIA reached a record high of 11,750.28 in trading before settling at a record closing price of 11,722.98; these two records would not be broken until October 3, 2006.
The largest one-day point gain in the Dow, an advance of 499.19, or 4.93%, occurred on March 16, 2000, as the broader market approached its top.
The largest one-day point drop in DJIA history occurred on September 17, 2001, the first day of trading after the September 11, 2001 attacks, when the Dow fell 684.81 points, or 7.1%. By the end of that week, the Dow had fallen 1,369.70 points, or 14.3%. A recovery attempt allowed the average to close the year above 10,000.
By mid-2002, the average had returned to its 1998 level of 8,000.
On October 9, 2002, the DJIA bottomed out at 7,286.27 (intra-day low 7,197.49), its lowest close since October 1997.
The Dow fell 14.3% after the September 11, 2001 attacks. Exchanges were closed between September 10th and September 17th.By the end of 2003, the Dow returned to the 10,000 level.
On January 9, 2006 the average broke the 11,000 barrier for the first time since June 2001.
In October 2006, four years after its bear market low, the DJIA set fresh record theoretical, intra-day, daily close, weekly, and monthly highs for the first time in almost seven years, closing above 12,000 for the first time on the 19th anniversary of Black Monday.
On February 27, 2007, the Dow Jones Industrial Average fell 3.3% (415.30 points), its biggest point drop since 2001. This move was part of a correction that eventually reached below the 12,000 level. It foreshadowed increased levels of volatility not seen since March 2003, including routine 1% moves and occasional moves of greater than 2% in a single session, which continued throughout the year. The initial drop was caused by a global sell-off after Chinese stocks experienced a mini-crash.
On April 25, 2007, the Dow passed 13,000 in trading and closed above the milestone for the first time. Less than three months later, on July 19, the average set an all-time closing high above the 14,000 level: the fastest 1,000-point advance for the index since 1999.
On July 26, 2007, the DJIA experienced a 450 point intraday loss, followed by a partial recovery of 311.50 points, to close at 13,473.57. This came on the heels of turbulence in the U.S. sub-prime mortgage market and the soaring value of the Yuan. The move initiated another correction falling below the 13,000 mark, about 10% from the highs.
On October 9, 2007, the Dow Jones Industrial Average closed at the record level of 14,164.53.
On July 2, 2008, with record-high oil and gasoline prices well above $140 per barrel and $4 per gallon, the Dow Jones Industrial Average closed in bear market territory. Two weeks later, its subsequent close below the 11,000 mark for the first time since 2006 was followed by a 500-point rally that accompanied a three-day 15% correction in energy prices.
On September 15, 2008, the Dow Jones lost more than 500 points for only the sixth time in history after Lehman Brothers filed Chapter 11 bankruptcy, Merrill Lynch was bought by Bank of America, and AIG was begging for extra capital. AIG's stock price dropped more than 60%, and Lehman lost almost 95%. This returned the Average to its mid-July lows below the 11,000 level, although more than 90% of the losses were erased by the end of the week. Kraft Foods replaced AIG in the index on September 22, arguably leaving the index underweighted in financials following the recent turmoil in the stock market. AIG's removal came after a tumultuous week for the insurer; the company was aided by the Federal Reserve through an $85 billion bailout that sought to keep the company from seeking bankruptcy protection.
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