What is the Dow Jones? The stock index, explained

The Dow Jones Industrial Average, usually called the Dow, is a stock market index that tracks the share prices of 30 large American companies, such as Apple, Coca-Cola and JPMorgan Chase. First published in 1896, it is one of the oldest stock indexes still in use. Unlike most indexes, it is weighted by share price, not company size, so a stock with a high price moves it more than a bigger company with a lower one.

In short

• The Dow is the sum of 30 stock prices divided by a number called the divisor, which keeps the index steady when its members change.
• Because it is price-weighted, a $1 move in any member's shares moves the Dow by the same number of points, however large or small the company.
• It covers far fewer companies than the S&P 500, which most professionals use as their benchmark for the US market.

Where did the Dow come from?

Charles Dow, a financial journalist and co-founder of Dow Jones & Company with Edward Jones, published the Industrial Average for the first time on 26 May 1896. It held 12 companies, mostly in industries of the day such as cotton oil, sugar, tobacco and leather, and stood at 40.94. Dow's idea was simple: average the prices of a few leading stocks and you get a quick reading on the market's direction, in an age before computers.

The list grew to 20 stocks in 1916 and to 30 in 1928, the number it has kept since. Its members change as the economy does. General Electric, one of the originals, was dropped in 2018 after more than a century. Recent additions include Amazon in February 2024, Nvidia and Sherwin-Williams in November 2024, and Alphabet, Google's parent company, which replaced Verizon on 29 June 2026. Despite its name, the Dow has long since stopped being only about industry: it now holds banks, software makers, retailers and health insurers. It leaves out only transportation and utility companies, which have their own Dow averages.

There is no fixed formula for membership. A committee at S&P Dow Jones Indices, which runs the index today, picks companies with a strong reputation, sustained growth and wide investor interest, and tries to keep a spread across sectors. The share price matters too, for a reason explained next.

Why is the Dow weighted by price?

Most indexes give each company weight in proportion to its total market value. The Dow does something older and simpler: it adds up the share prices of its 30 members and divides by a number called the Dow divisor.

The divisor started as 12, so the first Dow was a plain average. Over time it was adjusted every time a company split its stock, paid a large special dividend or was replaced, so that those events would not by themselves make the index jump. After so many adjustments, the divisor is now a small fraction: about 0.168 in July 2026. Dividing by 0.168 means that a $1 change in any member's share price moves the Dow by about 6 points.

What price-weighting means, in numbers

Take an imaginary index of two companies to see the quirk.

	Share price	Shares issued	Market value
Company A	$500	100 million	$50 billion
Company B	$50	10 billion	$500 billion

Company B is ten times bigger, but in a price-weighted index Company A counts ten times as much, because its share price is ten times higher. If A's shares rise 10%, from $500 to $550, a price-weighted index rises by the same amount as if B's shares doubled, from $50 to $100. A market-value-weighted index such as the S&P 500 would treat those two moves very differently: B doubling would add $500 billion of value; A rising 10% would add only $5 billion.

The same thing happens in the real Dow. With the divisor near 0.168, a $10 rise in a stock trading at $600 adds about 59 points, a gain of under 2% for that company. A $10 rise in a stock trading at $60 also adds about 59 points, though it is a jump of about 17%. A company's size has nothing to do with it. That is why S&P Dow Jones Indices said, when it swapped Alphabet for Verizon, that Verizon's low share price left it with only about half a percentage point of the index. A company that splits its stock, cutting its share price, also cuts its weight in the Dow, even though nothing about the business has changed.

Dow Jones vs S&P 500: which tells you more?

	Dow Jones Industrial Average	S&P 500
Started	1896	1957 in its 500-stock form
Companies	30	About 500
Weighted by	Share price	Market value of shares that trade freely
Share of the US market covered	A small slice of large companies	About 80% of the value of US-listed stocks
Who uses it	News headlines, history	Fund managers and index funds as the main benchmark

The two usually move in the same direction on the same day, because the Dow's 30 companies are big parts of the S&P 500 too. Over longer stretches they can drift apart, especially when a handful of companies with low share prices but huge market values drive the market. Most professionals treat the S&P 500 as the better gauge of large American companies and the Dow as a historic headline number. Points can mislead, too: a 500-point fall sounds dramatic, but with the Dow in the tens of thousands it is a move of about 1%. Percentages are the fairer comparison.

The Dow's worst days

The Dow's long record makes it the usual yardstick for crashes. In the crash of 1929 it fell nearly 13% on 28 October and almost 12% the next day, and by July 1932 it had lost 89% from its peak, a fall described in what caused the Great Depression. On 19 October 1987, Black Monday, it fell 508 points, or 22.6%, still the largest one-day percentage drop in its history. In 2008, during the financial crisis, it lost about a third of its value over the year.

Not advice

This note explains how the index works. It isn't financial advice, and the Dow's past moves say nothing certain about its future ones.

The Dow is one window onto how the stock market works, and onto the companies at the center of American capitalism. For how markets fit into the wider economy, see what economics is.

Check yourself

• Without looking back: why does a $10 move in a cheap stock and a $10 move in an expensive stock change the Dow by the same amount?
• What does the Dow divisor do, and why has it shrunk to a small fraction over time?
• Why do most professionals prefer the S&P 500 as a measure of the US market?

Sources

• Alphabet Set to Join and Honeywell International to Remain in Dow Jones Industrial Average — S&P Dow Jones Indices, 23 June 2026
• Alphabet added to Dow Jones Industrial Average, replacing Verizon — CNBC, 2026
• Stock Market Crash of 1929 — Federal Reserve History
• Stock Market Crash of 1987 — Federal Reserve History
• Dow Jones Industrial Average — Wikipedia
• List of Dow Jones Industrial Average companies — Wikipedia