The Dow Jones Industrial Average (DJIA), also known as the Dow, is one of the most-watched stock market measures in the world. It is a price-weighted average made up of companies including Apple, Boeing, Coca-Cola, Johnson & Johnson, and Walt Disney. Many investors follow the activity of the Dow Jones Industrial Average to gauge whether the stock market as a whole has gone up or down.

History of the Dow Jones Industrial Average
The Dow Jones Industrial Average was developed by newspaper editor Charles Dow and statistician Edward Jones at Dow Jones & Company in 1896 as a tool to see how the U.S. economy was doing day-to-day. Initially, the Dow launched with only 12 companies, mostly in the industrial sector since most of the economy was industrial at the time. Dow Jones & Company also created various other market averages. For example, the Dow Jones Transportation Average, the oldest stock index still in use, is a stock market index of the transportation sector.

A committee from S&P Dow Jones Indices and The Wall Street Journal selects companies for the DJIA, prioritizing those with strong reputations, steady growth, and high investor interest. Adjustments to the DJIA are made as needed, and only companies in the S&P 500 are eligible for inclusion.

Composition of the Dow Today
Today, the Dow is made up of 30 companies that are traded on the New York Stock Exchange and the Nasdaq Stock Market from several sectors: industrials, financials, consumer services, technology, health care, consumer goods, energy, basic materials, and telecommunications. These companies, which are some of the most actively traded stocks, are selected because they are considered to be market leaders in their sectors. See all of the stocks in the DJIA.

Why the Dow Changes
The companies comprising the Dow change from time to time. For example, 3M, a multinational conglomerate, was added to the Dow Jones Industrial Average in 1976, and Amgen, a biotechnology company, and Salesforce, a cloud-based software company, were added in 2020. Interestingly, none of the companies on the DJIA today were part of the original lineup in 1896. General Electric, which was removed from the Dow in 2018, was the longest-tenured Dow stock.

Since the Dow is used to measure the country’s economic health as well as the performance of the stock market, the DJIA must change as needed to reflect the market and economy. If a particular stock is no longer a good representative of its economic sector, it can be replaced by another more representative company.

In late 2024, it was announced that technology company Nvidia would replace its rival chipmaker Intel in the DJIA, and paint maker Sherwin-Williams would replace Dow Inc., a materials science company. The change was intended to give the DJIA the right amount of exposure to the semiconductors industry and the materials sector. Nvidia has rapidly overtaken Intel as a dominant player in the tech space, largely due to its pioneering work in artificial intelligence (AI) and specialized AI chips. Dow Inc. was likely replaced by Sherwin-Williams because Dow became a much smaller company than it previously was because of a spin-off from DowDuPont in 2019. As the market changes, so does the Dow Jones Industrial Average.

Current Management
The Dow Jones Industrial Average is now operated by S&P Dow Jones Indices, a joint venture between S&P Global and the CME Group. Some critics believe the Dow Jones Industrial Average’s importance has been blown out of proportion, contributing to overreactive bubbles and plunges, while many stock market experts see it as a key indicator of health for the broader economy. In the end, it’s important to remember that the Dow is just one of many tools to track the economy and the stock market.

In the Classroom
This article can be used to discuss the Dow Jones Industrial Average (Chapter 16: Financial Management and Securities Markets).

Discussion Questions

  1. What is the Dow Jones Industrial Average?
  2. Why was Nvidia added to the Dow Jones Industrial Average?
  3. Why does the group of companies that make up the Dow Jones Industrial Average change?

This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.