The Dow Jones Industrial Average (DJIA), which is the best known
market index, dates back to 1896. It is maintained by Dow Jones
and Company, which publishes The Wall Street Journal and
Barron's. Since 1928, the index has consisted of 30 stocks.
Every so often the list is revised due to mergers, companies that
are no longer considered "blue chips", or to reflect
changes in the general nature of the economy (from manufacturing
and service and technology).
Listing of changes to the Dow
through 2008 published by Dow Jones.
The index is computed by adding up the prices of the 30 stocks and then dividing a number, which is called the divisor. The divisor is designed to produce a consistent stream of values without jumps adjusts for splits, changes in the 30 stocks, or restructures and spin-offs (such as General Motors spinning off Delphi Automotive in 1999). Changes to the divisor are published in The Wall Street Journal. The current (1/10) value of the divisor is .132, a litlte more than 1/8, so each point change in an individual Dow stocks results in not quite an eight point change in the DJIA. Because the prices of all 30 stocks are added up, the higher priced stocks in the Dow have more influence than the lower priced ones. For example, a 5% change in a high priced stock such as IBM, which is currently selling around 125, would be about 6.25 points, which would cause the Dow to move by about 47 points if all the other stocks remained unchanged. A 5% move in a stock selling around 15 such as Bank of America is about 3/4 of a point, which would move the Dow by less than 6 points. In January 2009, four Dow stocks were well under 10, so their movements had almost no influence on the average.
Despite this flaw and a few others, the Dow has established itself, and when someone asks how the "market" is doing, the answer is usually the change in the Dow for the day. The 30 stocks currently (as of 12/2009) in the DJIA and their ticker symbols are:
Alcoa (AA)
American Express (AXP)
AT&T [was SBC Communications until 11/05] (T)
Bank of America (BAC)
Boeing (BA)
Caterpillar (CAT)
Chevron (CVX)
Cisco Systems (CSCO)
Coca-Cola (KO)
Disney (DIS)
DuPont (DD)
Exxon (XON)
General Electric (GE)
Hewlett-Packard Compaq (HPQ)
Home Depot (HD)
IBM (IBM)
Intel (INTC)
Johnson and Johnson (JNJ)
Kraft Foods (KFT)
McDonald's (MCD)
Merck (MRK)
Microsoft (MSFT)
MMM (MMM)
J.P. Morgan (JPM)
Pfizer (PFE)
Proctor and Gamble (PG)
Travelers Companies (TRV)
United Technologies (UTX)
Verizon Communications (VZ)
WalMart (WMT)
The following four stocks were removed from the Dow in March 1997:
Bethlehem Steel (BS)
Texaco (TX)
Westinghouse (WX)
Woolworth (Z)
In November 1999, four more stocks were removed from the Dow:
Chevron (CHV)
Goodyear (GT)
Sears (S)
Union Carbide (UK)
In April 2004, these three stocks were removed from the Dow:
AT&T (T). In 2005 SBC took over the remnants of AT&T and then
changed its name and stock ticker symbol to those of the legendary "Ma Bell".
Eastman Kodak (EK)
International Paper (IP)
In February 2008, two stocks were removed from the Dow:
Altria, was Phillip Morris (MO)
Honeywell (HON)
In September 2008, American International Group (AIG) was removed
In June 2009, two stocks were removed from the Dow:
Citigroup (C)
General Motors (GM)