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Last week the composition of the Dow Jones Industrial Average again changed.
First, let’s do some history, and then we’ll take a look.
The Dow Jones Industrial Average
Charlie Dow and Eddie Jones
In 1882, three friends started Dow Jones & Company. During every business day, six or seven 14 to 16 year-olds continuously delivered Dow Jones news bulletins created by Charlie Dow, Eddie Jones, and Charlie Bergstresser. They had the facts and the gossip.
A typical Dow Jones letter might say:
In 1884, they began to publish average closing prices for a group of representative stocks. Reflecting market trends, the first Dow index was composed of 11 companies, dominated by railroads (like the New York Central and Union Pacific) and called the Dow Jones Railroad Average.
The First Dow Industrial Average
Twelve years later, the Dow Industrial Average was created:
Dow Jones Industrial Average, S&P Global
The 1916 average reflected the role played by a young auto industry. You can see that it expanded to 20 companies:
Dow Jones Industrial Average, S&P Global
Finally, during the 1920s, the consumer and the Dow 30 arrived with Sears , Woolworth (a 5 & 10 cent store) and more car companies:
Dow Jones Industrial Average, S&P Global
On Friday, 11/8/24, the Dow welcomed “AI superstar” Nvidia and paintmaker Sherwin-Williams. To make room in the 30-company list (last tweaked with Amazon replacing Walgreens in February 2024), Intel and Dow departed:
To signal the direction of the U.S. economy, the Dow, as always, made the change to more tech. Now, it includes four of the six-trillion dollar tech companies. The two not listed are Meta and Alphabet.
Our Bottom Line: Impact on the Dow
We can ask if Nvidia’s whopping market capitalization will skew the Dow. The answer is no because it does not matter what the total of your stock price times the number of shares equals. In the Dow, the math takes us to a price-weighted index. As a result, because share price is what counts, United Health, selling for close to $567 and Goldman Sachs at $500 nudge the Dow the most. Meanwhile, CNBC tells us that an Nvidia dollar gain would elevate the Dow by approximately .74%. Then, with its volatility also having an impact, Nvidia could wind up with the eighth largest influence on the Dow.
My sources and more: Starting with our conclusion, CNBC had the perfect explanation of the math. Then, for some Dow history, the Library of Congress is a possibility here. Please note that today’s post is an updated version of our past Dow histories.
