what is the dow jones industrial average djia 
the dow jones industrial average djia is a stock market index that tracks 30 large publicly owned blue chip companies trading on the new york stock exchange nyse and nasdaq the dow jones is named after charles dow who created the index in 1896 along with his business partner edward jones also referred to as the dow 30 the index is considered to be a gauge of the broader u s economy investopedia nono floresunderstanding the dow jones industrial average djia the djia is the second oldest u s market index after the dow jones transportation average the djia was designed to serve as a proxy for the health of the broader u s economy often referred to simply as the dow it is one of the most watched stock market indexes in the world while the dow includes a range of companies all of them can be described as blue chip companies with consistently stable earnings in the early 20th century the performance of industrial companies was typically tied to the overall growth rate in the economy that cemented the relationship between the dow s performance and the overall economy even today for many investors a strong performing dow equals a strong economy while a weak performing dow indicates a slowing economy as the economy changes over time so does the composition of the index a component of the dow may be dropped when a company becomes less relevant to current trends of the economy to be replaced by a new name that better reflects the shift for instance a company may be removed from the index when its market capitalization drops because of financial distress stocks with higher share prices are given greater weight in the index so a higher percentage move in a higher priced component will have a greater impact on the final calculated value at the dow s inception charles dow calculated the average by adding the prices of the 12 dow component stocks and dividing by 12 the result was a simple average over time there were additions and subtractions to the index that had to be accounted for such as mergers and stock splits at that point a simple mean calculation no longer made sense the dow divisor and index calculationthe dow divisor was created to address the simple average issue the divisor is a predetermined constant that is used to determine the effect of a one point move in any of the approximately 30 stocks that comprise the dow there have been instances when the divisor needed to be changed so that the value of the dow stayed consistent as of february 2024 the dow divisor was 0 15265312230608 the dow is not calculated using a weighted arithmetic average and does not represent its component companies market cap unlike the s p 500 rather it reflects the sum of the price of one share of stock for all the components divided by the divisor thus a one point move in any of the component stocks will move the index by an identical number of points the s p 500 has outperformed the djia on an annualized basis over the last three five and 10 year periods dow jones industrial average djia index componentsthe djia launched in 1896 with just 12 companies primarily in the industrial sector they included railroads cotton gas sugar tobacco and oil the index grew to 30 components by 1928 since then it s changed many times the very first came three months after the 30 component index launched the first large scale change was in 1932 when eight stocks in the dow were replaced the dow is reevaluated regularly companies are replaced when they no longer meet the index s listing criteria with those that do over time the index became a bellwether of the u s economy reflecting economic changes for example u s steel was removed from the index in 1991 and replaced by building material company martin marietta other major changes to the djia came walgreens boots alliance replaced general electric in june 2018 in august 2020 salesforce amgen and honeywell were added to the dow replacing exxonmobil pfizer and raytheon technologies raytheon joined the djia earlier that year after united technologies merged with raytheon company amazon replaced walgreens in february 2024 after walmart s stock split which reduced its weight on the index dowdupont spun off dupont and was replaced by dow chemical company in 2019 the table below lists the companies included in the djia alphabetically as of september 2023 historical milestonesthe following are some important historical milestones achieved by the dow individuals can invest in the dow which would mean gaining exposure to all of the companies listed in it through exchange traded funds etfs such as the spdr dow jones industrial average etf dia limitations of the djiamany critics argue that the dow does not significantly represent the state of the u s economy as it consists of only 30 large cap u s companies they believe the number of companies is too small and it neglects companies of different sizes many critics believe the s p 500 is a better representation of the economy as it includes significantly more companies 500 versus 30 critics also believe that factoring only the price of a stock in the calculation does not accurately reflect a company as much as considering a company s market cap would in this manner a company with a higher stock price but a smaller market cap would have more weight than a company with a smaller stock price but a larger market cap which would poorly reflect the true size of a company the dow is also a price weighted index as opposed to being weighted by market capitalization this means that stocks in the index with higher share prices have greater influence regardless if they are smaller companies overall in terms of market value in a price weighted index a stock that increases from 110 to 120 will have the same net effect on the index as a stock that increases from 10 to 20 even though the percentage move for the latter is far greater than that of the higher priced stock this also means that stock splits can have an impact on the index whereas they would not for a market cap weighted index 