To check the market investors check Dow
The Dow Jones industrial average may not be the most comprehensive measure of the stock market, or even the most accurate, but when investors want to know how the market is doing, they invariably ask, "Where's the Dow?"
Unlike other indexes based on the performance of hundreds or even thousands of publicly traded companies, the Dow, as it is popularly called, is a composite of the stock prices of just 30 leading US companies, known as blue chips, that are selected from sectors thought by editors of The Wall Street Journal, the flagship publication of Dow Jones & Co., to be driving the US economy. Created in 1896 to track what was then a small but growing segment of the economy known as industrials, the Dow has not only gauged the market's ups and downs for more than a century, but also the changes that transformed the United States from an emerging industrial society to a global economic powerhouse.
The composite, devised by Charles Dow, one of The Wall Street Journal's founders, began with 12 component companies, including cotton oil and sugar producers, leather and rubber makers, a steel concern, and a company specializing in distilling and cattle feed. Today, the Dow, which expanded to 30 companies in 1928, reflects a far broader economy, including traditional industrials such as General Motors, as well as technology giants such as Microsoft Corp., service providers such as American Express Co., and retailers such as Wal-Mart Stores Inc.
Of the original companies, only one remains in the Dow: General Electric Co., of Fairfield, Conn.
Dow components have changed several times over the past century, including three times in the 1990s, but there is no set schedule for updating the composite. Rather, it is done periodically at the discretion of the managing editor of The Wall Street Journal.
The last big revision occurred in 1999 when Microsoft, Intel, Home Depot, and SBC Communications replaced Chevron, Goodyear Tire, Sears, and Union Carbide. That change also marked the first time companies listed on the technology-heavy Nasdaq Stock Market -- Microsoft and Intel -- were included in the Dow, which had been the exclusive domain of the bigger New York Stock Exchange.
Since the Dow components change, the "industrial average" reported daily is not a straight arithmetical average of the stock prices of the 30 companies, but rather an adjusted figure that allows the Dow to be compared from era to era, even as a Microsoft replaces a Goodyear. The Dow is also adjusted to take into account other factors, such as stock splits, that lower individual stock prices, but not a company's overall value.
The Dow spent the first 25 years of its existence in obscurity as few Americans were willing to hazard the risks of investing in stocks, and most considered the new industrials to be highly speculative. But during the Roaring '20s, with middle-class Americans pouring money into stocks, fueling a market boom that has been compared to that of the 1990s, the Dow became a household word on Main Street.
By the end of that decade, the Dow had probably become a painful word for investors, as it tracked the stock market crash of 1929 and continued to fall until July 1932, when it hit a record low of 41.22 -- one-tenth of its previous peak. No doubt, investors of today, who followed the Dow to a record high of 11,722.98 in 2000 and down to a five-year low of 7,286.27, can sympathize.
Robert Gavin can be reached at rgavin@globe.com.
