Business Finance

Understanding the Dow Jones Indexes

Written by Bennet Grill for Gaebler Ventures

Have you heard news reports of the "Dow" rising or falling, and knew that it had something to do with the stock market, but wasn't completely sure of what the "Dow" was? Dow Jones & Company has created a number of indexes which track the financial performance of certain stocks since 1896. This article explains what the "Dow" is, and the role it plays in today's financial markets.

Dow Jones & Company has been a very influential institution in American business.

As an entrepreneur, it's important to understand the significance of the Dow and the role it plays as an indicator of the health of financial markets. It is responsible for the publication of the Wall Street Journal and the Dow Jones Industrial Average, one of the most widely referenced financial benchmarks in the world. Three reporters, Charles Dow, Edward Jones, and Charles Bergstresser, founded Dow Jones & Company in 1882. In 1896, the Dow Jones Industrial Average was first published and included the following 12 companies, who were considered the largest and most influential industrial companies of the time:

General Electric
American Cotton Oil Company
American Sugar Company
American Tobacco Company
Chicago Gas Company
Distilling & Cattle Feeding Company
Laclede Gas Light Company
National Lead Company
North American Company
Tennessee Coal, Iron and Railroad Company
U.S. Leather Company
United States Rubber Company

Of the 12 original companies, only General Electric remains on the Dow Jones Industrial Average. Since 1896, the index has increased to 30 companies, where it stands today. The current 30 companies of the Dow Jones Industrial Average are as follows:

3M Co.
Alcoa Inc.
American Express Co.
AT&T Inc.
Bank of America Corp.
Boeing Co.
Caterpillar Inc.
Chevron Corp.
Cisco Systems Inc.
Coca-Cola Co.
E.I. DuPont de Nemours & Co.
Exxon Mobil Corp.
General Electric Co.
Hewlett-Packard Co.
Home Depot Inc.
Intel Corp.
International Business Machines Corp.
Johnson & Johnson
JPMorgan Chase & Co.
Kraft Foods Inc. Cl A
McDonald's Corp.
Merck & Co. Inc.
Microsoft Corp.
Pfizer Inc.
Procter & Gamble Co.
Travelers Cos. Inc.
United Technologies Corp.
Verizon Communications Inc.
Wal-Mart Stores Inc.
Walt Disney Co.

As you can probably tell, the DJIA no longer exclusively focuses on industrial companies; it represents the largest publicly held companies and includes companies listed on both the New York Stock Exchange and the NASDAQ Exchange. The Dow Jones Industrial Average is preceded only by the Dow Jones Transportation Index, which was first published in 1884. As you can probably tell, this index included the leading transportation companies of the day. Here are the original eleven companies.

Chicago, Milwaukee and St. Paul Railway
Chicago and North Western Railway
Delaware, Lackawanna and Western Railroad
Lake Shore and Michigan Southern Railway
Louisville and Nashville Railroad
Missouri Pacific Railway
New York Central Railroad
Northern Pacific Railroad preferred stock
Pacific Mail Steamship Company
Union Pacific Railway
Western Union

Today, the list has expanded to twenty companies, and, unlike the industrial index, all of the current companies are transportation related:

Alexander & Baldwin, Inc.
AMR Corporation
Burlington Northern Santa Fe Corp.
C.H. Robinson Worldwide, Inc.
Con-Way, Inc.
Continental Airlines, Inc.
CSX Corp.
Expeditors International
FedEx Corporation
GATX Corp.
JB Hunt Transport Services, Inc.
JetBlue Airways Corp.
Landstar System, Inc.
Norfolk Southern Corp.
Overseas Shipholding Group, Inc.
Ryder System, Inc.
Southwest Airlines, Inc.
Union Pacific Corp.
United Parcel Service, Inc.
YRC Worldwide Inc.

While the original index was largely composed of railroad companies, today's transportation index includes many airline and shipping companies.

In addition to the industrial and transportation indexes, Dow Jones & Company also publishes a utility index. In 1929, all utility stocks were removed from the Dow Jones Industrial Index and the Dow Jones Utility Index was born. The original twenty utility companies in the index were:

American & Foreign Power
Electric Power & Light Co.
American Gas & Electric Co.
Engineers Public Electric
American Power & Light Co.
International Telephone & Telegraph
American Telephone & Telegraph
National Power & Light
American Water Works & Electric Co.
North American Co.
Brooklyn Union Gas
Pacific Gas & Electric
Columbia Gas System
Public Service Co. of N.J.
Consolidated Gas System
Standard Gas & Electric Co.
Consolidated Edison
Western Union Telegraph
Niagara Hudson Power
Southern California Edison

Today, the Dow Jones Utility index includes the following fifteen companies.

The AES Corp.
American Electric Power Co., Inc.
CenterPoint Energy, Inc.
Consolidated Edison, Inc.
Dominion Resources, Inc.
Duke Energy Corp.
Edison International
Exelon Corp.
F P L Group Corp.
FirstEnergy Corp.
NiSource, Inc.
PG&E Corp.
Public Service Enterprise Group, Inc.
Southern Company, Inc.
Williams Companies, Inc.

Last, but not least, Dow Jones & Company publishes a composite index which includes all companies in the industrial, transportation, and utility indexes. The Dow Jones Indexes are among the most widely followed in today's market and are an important tool investors use to keep track of the nation's financial condition.

Bennet Grill is a writer who has a passion for business and finance. He is currently an Economics major at Duke University in North Carolina.

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