Dow Jones Industrial Average (DJIA)
A price-weighted stock market index tracking 30 large US companies—one of the oldest and most recognized market indicators, though less representative than the S&P 500.
When someone says "the market was up 300 points today," they almost always mean the Dow. Created in 1896 by Charles Dow, it tracks 30 major US companies selected by the editors of The Wall Street Journal. Unlike the S&P 500 (which covers 500 companies weighted by their total value), the Dow is price-weighted—stocks with higher share prices have more influence regardless of the company's actual size.
That price-weighting creates some quirks. UnitedHealth Group at ~$500/share has roughly 10 times the index influence of Intel at ~$50/share, even if their total company values aren't that far apart. Stock splits reduce a company's Dow influence (lower price = less weight), which is why high-priced stocks like Amazon avoided splitting for years.
Despite these limitations, the Dow remains the most quoted market indicator in mainstream media. Its longevity and simplicity give it a cultural significance that its methodology doesn't necessarily deserve.
The 30 Dow stocks get updated periodically to reflect the changing economy. Recent additions include Amazon, Salesforce, and Goldman Sachs, while General Electric—an original member—was removed in 2018. Today's Dow looks nothing like its historical lineup.
For your own investing, the S&P 500 is a more useful benchmark because it covers more companies, weights them by actual market value (more accurately reflecting the economy), and serves as the basis for more index funds. But understanding the Dow is still helpful for making sense of financial news and historical market data.
Frequently Asked Questions
▸Is the Dow a good benchmark for my portfolio?
The S&P 500 is generally better. The Dow only covers 30 stocks with an outdated price-weighting method. That said, the Dow and S&P 500 tend to move in the same direction—the correlation is very high. For a broad US stock portfolio, stick with the S&P 500 as your benchmark.
▸Why do people still follow the Dow?
Mostly tradition and simplicity. It's been quoted since 1896, making it deeply embedded in financial culture. Its point movements are easy to grasp, and media coverage keeps it front and center. The S&P 500 is more analytically useful, but the Dow remains the public face of the stock market.
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