# Dow Jones Industrial Average

(Redirected from DJIA divisor)
Foundation Historical logarithmic graph of the DJIA from 1896 to 2018. February 16, 1885; 133 years ago (as DJA)[1] May 26, 1896 (as DJIA)[2] S&P Dow Jones Indices ^DJI 30 Large cap Price-weighted www.djaverages.com?go=industrial-overview

The Dow Jones Industrial Average (/ˈd/; DJIA), or simply the Dow, is a stock market index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market.[3] The value of the Dow is not a weighted arithmetic mean[4] and does not represent its component companies' market capitalization, but rather the sum of the price of one share of stock for each component company. The sum is corrected by a factor which changes whenever one of the component stocks has a stock split or stock dividend, so as to generate a consistent value for the index.[5]

It is the second-oldest U.S. market index after the Dow Jones Transportation Average, created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. Currently owned by S&P Dow Jones Indices, which is majority owned by S&P Global, it is the best known of the Dow Averages, of which the first (non-industrial) was originally published on February 16, 1885. The averages are named after Dow and one of his business associates, statistician Edward Jones. The industrial average was first calculated on May 26, 1896.[2]

The Industrial portion of the name is largely historical, as many of the modern 30 components have little or nothing to do with traditional heavy industry. Since the divisor is currently less than one, the value of the index is larger than the sum of the component prices. Although the Dow is compiled to gauge the performance of the industrial sector within the American economy, the index's performance continues to be influenced by not only corporate and economic reports, but also by domestic and foreign political events such as war and terrorism, as well as by natural disasters that could potentially lead to economic harm.

## Components

Since the close on September 1, 2017, the Dow Jones Industrial Average has consisted of the following 30 major companies:

Company Exchange Symbol Industry Date Added Notes
3M NYSE MMM Conglomerate 1976-08-09 as Minnesota Mining and Manufacturing
American Express NYSE AXP Consumer finance 1982-08-30
Apple NASDAQ AAPL Consumer electronics 2015-03-19
Boeing NYSE BA Aerospace and defense 1987-03-12
Caterpillar NYSE CAT Construction and mining equipment 1991-05-06
Chevron NYSE CVX Oil & gas 2008-02-19 also 1930-07-18 to 1999-11-01
Cisco Systems NASDAQ CSCO Computer networking 2009-06-08
Coca-Cola NYSE KO Beverages 1987-03-12 also 1932-05-26 to 1935-11-20
DowDuPont NYSE DWDP Chemical industry 2017-09-01 Essentially, as continuation of E.I. du Pont de Nemours & Company's appearance since 1935-11-20, but officially a new company due to its merger with Dow Chemical Company on the same day.[6]
ExxonMobil NYSE XOM Oil & gas 1928-10-01 as Standard Oil of New Jersey
General Electric NYSE GE Conglomerate 1907-11-07 also 1896-05-26 to 1898-10 and 1899-04-21 to 1901-04-01
Goldman Sachs NYSE GS Banking, Financial services 2013-09-20
The Home Depot NYSE HD Home improvement retailer 1999-11-01
IBM NYSE IBM Computers and technology 1979-06-29 also 1932-05-26 to 1939-03-04
Intel NASDAQ INTC Semiconductors 1999-11-01
Johnson & Johnson NYSE JNJ Pharmaceuticals 1997-03-17
JPMorgan Chase NYSE JPM Banking 1991-05-06
McDonald's NYSE MCD Fast food 1985-10-30
Merck NYSE MRK Pharmaceuticals 1979-06-29
Microsoft NASDAQ MSFT Software 1999-11-01
Nike NYSE NKE Apparel 2013-09-20
Pfizer NYSE PFE Pharmaceuticals 2004-04-08
Procter & Gamble NYSE PG Consumer goods 1932-05-26
Travelers NYSE TRV Insurance 2009-06-08
UnitedHealth Group NYSE UNH Managed health care 2012-09-24
United Technologies NYSE UTX Conglomerate 1939-03-14 as United Aircraft
Verizon NYSE VZ Telecommunication 2004-04-08
Visa NYSE V Consumer banking 2013-09-20
Walmart NYSE WMT Retail 1997-03-17
Walt Disney NYSE DIS Broadcasting and entertainment 1991-05-06

## Former components

The components of the DJIA have changed 51 times since its beginning in May 26, 1896. General Electric has had the longest continuous presence on the index, beginning in 1907. More recent changes to the index include the following:

## History

### Precursor

DJIA monthly trading volume in shares from 1929 to 2012

In 1884, Charles Dow composed his first stock average, which contained nine railroads and two industrial companies that appeared in the Customer's Afternoon Letter, a daily two-page financial news bulletin which was the precursor to The Wall Street Journal. On January 2, 1886, the number of stocks represented in what is now the Dow Jones Transportation Average dropped from 14 to 12, as the Central Pacific Railroad and Central Railroad of New Jersey were removed. Though comprising the same number of stocks, this index contained only one of the original twelve industrials that would eventually form Dow's most famous index.[14]

### Initial components

Dow calculated his first average purely of industrial stocks on May 26, 1896, creating what is now known as the Dow Jones Industrial Average. Of the original 12 industrials, only General Electric currently remains part of that index.[15] The other 11 were:[16]

### Early years

When it was first published in the mid-1880s, the index stood at a level of 62.76. It reached a peak of 78.38 during the summer of 1890, but ended up hitting its all-time low of 28.48 in the summer of 1896 during the Panic of 1896. Many of the biggest percentage price moves in the Dow occurred early in its history, as the nascent industrial economy matured. The 1900s would see the Dow halt its momentum as it worked its way through two financial crises; the Panic of 1901 and the Panic of 1907. The Dow would remain stuck in a trading range between 53 and 103 points until late 1914. The negativity surrounding the 1906 San Francisco earthquake did little to improve the economic climate.

At the start of the 1910s, the decade would begin with the Panic of 1910–1911 stifling economic growth for a lengthy period of time. History would later take its course on July 30, 1914; as the average stood at a level of 71.42 when a decision was made to close down the New York Stock Exchange, and suspend trading for a span of four and a half months. Some historians believe the exchange closed because of a concern that markets would plunge as a result of panic over the onset of World War I. An alternative explanation is that the Secretary of the Treasury, William Gibbs McAdoo, closed the exchange to conserve the U.S. gold stock in order to launch the Federal Reserve System later that year, with enough gold to keep the United States on par with the gold standard. When the markets reopened on December 12, 1914, the index closed at 74.56, a gain of 4.4 percent. This is frequently reported as a large drop, due to using a later redefinition. Reports from the time say that the day was positive.[18] Following World War I, the United States would experience another economic downturn, the post-World War I recession. The Dow's performance would remain unchanged from the closing value of the previous decade, adding only 8.26%, from 99.05 points at the beginning of 1910, to a level of 107.23 points at the end of 1919.[19]

During the 1920s, specifically In 1928, the components of the Dow were increased to 30 stocks near the economic height of that decade, which was nicknamed the Roaring Twenties. This period downplayed the influence of an early 1920s recession plus certain international conflicts such as the Polish-Soviet war, the Irish Civil War, the Turkish War of Independence and the initial phase of the Chinese Civil War. The Crash of 1929 and the ensuing Great Depression over the next several years returned the average to its starting point, almost 90% below its peak. By July 8, 1932, following its intra-day low of 40.56, the Dow would end up closing the session at 41.22. The high of 381.17 on September 3, 1929, would not be surpassed until 1954, in inflation-adjusted numbers. However, the bottom of the 1929 Crash came just 2½ months later on November 13, 1929, when intra-day it was at the 195.35 level, closing slightly higher at 198.69.[20] For the decade, the Dow would end off with a healthy 131.7% gain, from 107.23 points at the beginning of 1920, to a level of 248.48 points at the end of 1929, just before the Crash of 1929.[21]

Marked by global instability and the Great Depression, the 1930s contended with several consequential European and Asian outbreaks of war, leading up to catastrophic World War II in 1939. Other conflicts during the decade which affected the stock market included the 1936–1939 Spanish Civil War, the 1935–1936 Second Italo-Abyssinian War, the Soviet-Japanese Border War of 1939 and the Second Sino-Japanese War from 1937. On top of that, the United States dealt with a painful recession in 1937 and 1938 which temporarily brought economic recovery to a halt. The largest one-day percentage gain in the index, 15.34%, happened on March 15, 1933, in the depths of the 1930s bear market when the Dow gained 8.26 points to close at 62.10. However, as a whole throughout the Great Depression, the Dow posted some of its worst performances, for a negative return during most of the 1930s for new and old stock market investors. For the decade, the Dow Jones average was down from 248.48 points at the beginning of 1930, to a stable level of 150.24 points at the end of 1939, a loss of about 40%.[22]

### Post-war years

Post-war reconstruction during the 1940s, along with renewed optimism of peace and prosperity, brought about a 39% surge in the Dow from around the 148 level to 206. The strength in the Dow occurred despite a brief recession in 1949 and other global conflicts which started a short time later including the latter stages of the Chinese Civil War, the Greek Civil War, the Indo-Pakistani War of 1947 and the 1948 Arab–Israeli War.

During the 1950s, the Korean War, the Algerian War, the Cold War and other political tensions such as the Cuban Revolution, as well as widespread political and economic changes in Africa during the initial stages of European Decolonization, did not stop the Dow's bullish climb higher. Additionally, the U.S. would also make its way through two grinding recessions; one in 1953 and another in 1958. A 200% increase in the average from a level of 206 to 616 ensued over the course of that decade.

The Dow fell 22.61% on Black Monday (1987) from about the 2,500 level to around 1,750. Two days later, it rose 10.15% above the 2,000 level for a mild recovery attempt.

The Dow's bullish behavior began to stall during the 1960s as the U.S. became entangled with foreign political issues such as U.S. military excursions including the Bay of Pigs Invasion involving Cuba, the Vietnam War, the Portuguese Colonial War, the Colombian civil war which the U.S. assisted with short-lived counter-guerrilla campaigns, as well as domestic issues such as the Civil Rights Movement and several influential political assassinations. For the decade though, and despite a mild recession between 1960 and 1961, the average still managed a respectable 30% gain from the 616 level to 800.

The 1970s marked a time of economic uncertainty and troubled relations between the U.S. and certain Middle-Eastern countries. To begin with, the decade started off with the ongoing Recession of 1969–70. Following that, the 1970s Energy Crisis ensued which included the 1973–75 recession, the 1973 Oil Crisis as well as the 1979 energy crisis beginning as a prelude to a disastrous economic climate injected with stagflation; the combination between high unemployment and high inflation. However, on November 14, 1972, the average closed above the 1,000 mark (1,003.16) for the first time, during a brief relief rally in the midst of a lengthy bear market. Between January 1973 and December 1974, the average lost 48% of its value in what became known as the 1973–1974 Stock Market Crash; with the situation being exacerbated by the events surrounding the Yom Kippur War. The index closed at 577.60, on December 4, 1974. During 1976, the index went above 1000 several times, and it closed the year at 1,004.75. Although the Vietnam War ended in 1975, new tensions arose towards Iran surrounding the Iranian Revolution in 1979. Other notable disturbances such as the Lebanese Civil War, the Ethiopian Civil War, the Indo-Pakistani War of 1971 and the Angolan Civil War which the U.S. and Soviet Union considered critical to the global balance of power, seemed to have had little influence towards the financial markets. Performance-wise for the decade, gains remained virtually flat, rising less than 5% from about the 800 level to 838.

The 1980s decade started with the early 1980s recession. In early 1981, it broke above 1000 several times, but then retreated. The largest one-day percentage drop occurred on Black Monday; October 19, 1987, when the average fell 22.61%. There were no clear reasons given to explain the crash, but program trading may have been a major contributing factor. On October 13, 1989, the Dow stumbled into another downfall, the 1989 Mini-Crash which initiated the collapse of the junk bond market as the Dow registered a loss of almost 7%.

For the decade, the Dow made a 228% increase from the 838 level to 2,753; despite the market crashes, Silver Thursday, an early 1980s recession, the 1980s oil glut, the Japanese asset price bubble and other political distractions such as the Soviet war in Afghanistan, the Falklands War, the Iran–Iraq War, the Second Sudanese Civil War and the First Intifada in the Middle East. The index had only two negative years, which were in 1981 and 1984.

### Dot-com boom

The 1990s brought on rapid advances in technology along with the introduction of the dot-com era. To start off, the markets contended with the 1990 oil price shock compounded with the effects of the Early 1990s recession and a brief European situation surrounding Black Wednesday. Certain influential foreign conflicts such as the 1991 Soviet coup d'état attempt which took place as part of the initial stages of the Dissolution of the USSR and the Fall of Communism; the First and Second Chechen Wars, the Persian Gulf War and the Yugoslav Wars failed to dampen economic enthusiasm surrounding the ongoing Information Age and the "irrational exuberance" (a phrase coined by Alan Greenspan) of the Internet Boom. Even the occurrences of the Rwandan Genocide and the Second Congo War, termed as "Africa's World War" that involved 8 separate African nations which together between the two killed over 5 million people, didn't seem to have any noticeable negative financial impact on the Dow either. Between late 1992 and early 1993, the Dow staggered through the 3,000 level making only modest gains as the Biotechnology sector suffered through the downfall of the Biotech Bubble; as many biotech companies saw their share prices rapidly rise to record levels and then subsequently fall to new all-time lows.

On November 21, 1995, the DJIA closed above the 5,000 level (5,023.55) for the first time. Over the following two years, the Dow would rapidly tower above the 6,000 level during the month of October in 1996, and the 7,000 level in February 1997. On its march higher into record territory, the Dow easily made its way through the 8,000 level in July 1997. However, later in that year during October, the events surrounding the Asian Financial Crisis plunged the Dow into a 554-point loss to a close of 7,161.15; a retrenchment of 7.18% in what became known as the 1997 Mini-Crash. Although internationally there was negativity surrounding the 1998 Russian financial crisis along with the subsequent fallout from the 1998 collapse of the derivatives Long-Term Capital Management hedge fund involving bad bets placed on the movement of the Russian ruble, the Dow would go on to surpass the 9,000 level during the month of April in 1998, making its sentimental push towards the symbolic 10,000 level. On March 29, 1999, the average closed above the 10,000 mark (10,006.78) after flirting with it for two weeks. This prompted a celebration on the trading floor, complete with party hats. The scene at the exchange made front-page headlines on many U.S. newspapers such as The New York Times. On May 3, 1999, the Dow achieved its first close above the 11,000 mark (11,014.70). Total gains for the decade exceeded 315%; from the 2,753 level to 11,497.

The Dow averaged a 5.3% return compounded annually for the 20th century, a record Warren Buffett called "a wonderful century"; when he calculated that to achieve that return again, the index would need to close at about 2,000,000 by December 2099.[23] During the height of the dot-com era, authors James K. Glassman and Kevin A. Hassett went so far as to publish a book entitled Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market. Their theory was to imply that stocks were still cheap and it was not too late to benefit from rising prices during the Internet boom.

Characterized by fear on the part of newer investors, the uncertainty of the 2000s (decade) brought on a significant bear market. There was indecision on whether the cyclical bull market represented a prolonged temporary bounce or a new long-term trend. Ultimately, there was widespread resignation and disappointment as the lows were revisited, and in some cases, surpassed near the end of the decade.

### Post internet-bubble era

The Dow fell 14.3% from the mid-9,000 level to the low 8,000 level after the September 11, 2001 attacks. Exchanges were closed between September 11 and 17.

The fourth largest one-day point drop in DJIA history, and largest at the time, occurred on September 17, 2001, the first day of trading after the September 11, 2001 attacks, when the Dow fell 684.81 points, or 7.1%. However, the Dow had been in a downward trend for virtually all of 2001 prior to September 11, losing well over 1000 points between January 2 and September 10, and had lost 187.51 points on September 6, followed by losing 235.4 points on September 7.[24] By the end of that week, the Dow had fallen 1,369.70 points, or 14.3%. However, the Dow began an upward trend shortly after the attacks, and quickly regained all lost ground to close above the 10,000 level for the year.

During 2002, the average remained subdued without making substantial gains due to the stock market downturn of 2002 as well as the lingering effects of the dot-com bubble. In 2003, the Dow held steady within the 7,000 to 9,000-point level range by the early 2000s recession, the Afghan War and the Iraq War. But by December of that year, the Dow remarkably returned to the 10,000 mark. In October 2006, four years after its bear market low, the DJIA set fresh record theoretical, intra-day, daily close, weekly, and monthly highs for the first time in almost seven years, closing above the 12,000 level for the first time on the 19th anniversary of Black Monday (1987). On February 27, 2007, the Dow Jones Industrial Average fell 3.3% (415.30 points), its biggest point drop since 2001. The initial drop was caused by a global sell-off after Chinese stocks experienced a mini-crash, yet by April 25, the Dow passed the 13,000 level in trading and closed above that milestone for the first time. On July 19, 2007, the average passed the 14,000 level, completing the fastest 1,000-point advance for the index since 1999. One week later, a 450-point intra-day loss, owing to turbulence in the U.S. sub-prime mortgage market and the soaring value of the yuan,[25][26] initiated another correction falling below the 13,000 mark, about 10% from its highs.

On October 9, 2007, the Dow Jones Industrial Average closed at a record high of 14,164.53. Two days later on October 11, the Dow traded at an intra-day level high of 14,198.10,[27] a mark which would not be matched until March 2013.[28] In what would normally take many years to accomplish; numerous reasons were cited for the Dow's extremely rapid rise from the 11,000 level in early 2006, to the 14,000 level in late 2007. They included future possible takeovers and mergers, healthy earnings reports particularly in the tech sector, and moderate inflationary numbers; fueling speculation the Federal Reserve would not raise interest rates.

### Options contracts

The Chicago Board Options Exchange (CBOE) issues Options Contracts on the Dow through the root symbol DJX in combination with long-term expiration options called DJX LEAPS. There are also options on the various ETFs; Performance ETFs, Inverse Performance ETFs, 2x Performance ETFs, Inverse 2x Performance ETFs, 3x Performance ETFs, and Inverse 3x Performance ETFs.

## Calculation

To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Early on, the initial divisor was composed of the original number of component companies; which made the DJIA at first, a simple arithmetic average. The present divisor, after many adjustments, is less than one (meaning the index is larger than the sum of the prices of the components). That is:

${\displaystyle {\text{DJIA}}={\sum p \over d}}$

where p are the prices of the component stocks and d is the Dow Divisor.

Events such as stock splits or changes in the list of the companies composing the index alter the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the Dow Divisor is updated so that the quotations right before and after the event coincide:

${\displaystyle {\text{DJIA}}={\sum p_{\text{old}} \over d_{\text{old}}}={\sum p_{\text{new}} \over d_{\text{new}}}.}$