Dow Jones Industrial Average Versus S&P 500 Stock Weightings Dow Jones Industrial Average

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Dow Jones Industrial Average

The oldest stock market index, the Dow Jones Industrial Average (DJIA), was launched on May 26, 1896 by financial journalist Charles Dow. At its inception, the DJIA started with only 12 stocks and was traded at 40.94, far from its current level. The index is officially calculated on a weighted basis. In other words, stocks with higher prices are given more weight in the index than stocks with lower prices (regardless of the size of each company).

The Dow tracks 30 of the largest public companies in the stock market and is the most frequently cited index when discussing market performance. When the media reports on how the market is going, you may find that they report the closing price and the daily change of the Dow. It has survived as a measure of market action for over a century and has been shown to be highly correlated with various indices such as the S&P 500.

Companies within the Dow Jones have changed throughout its existence. The first company in 1896 was General Electric. Changes occur for reasons such as mergers and bankruptcies and some are designed to reflect the changing times. The index broke with tradition and added well-known technology names Microsoft and Intel in 1999. The Dow does not adequately represent industrial activity because it includes companies such as Citigroup, Home Depot, Walt Disney, and Microsoft.

The list below shows the eleven 1,000 DJIA points and how long it took to reach them.

Milestone – Date – How long will it take

  • 1,000 – Nov 14, 1972 – 76 years old
  • 2,000 – 08 January 1987 – 14 years
  • 3,000 – 17 Apr 1991 – 4 years
  • 4,000 – 23 Feb 1995 – 4 years
  • 5,000 – 21 Nov 1995 – 9 months
  • 6,000 – October 14, 1996 – 11 months
  • 7,000 – 13 Feb 1997 – 4 months
  • 8,000 – July 16, 1997 – 5 months
  • 9,000 – 6 Apr 1998 – 9 months
  • 10,000 – 29 Mar 1999 – 12 months
  • 11,000 – May 3, 1999 – 1 month
  • It took the Dow 76 years to reach its first milestone but it took less time to reach the next ones because the higher the Dow, the easier it is to jump 1,000. Most of what happened happened during the 1982-1999 bull market.

    Some argue that the Dow is outdated and doesn’t really represent the market as a whole because it is price-weighted and only has 30 companies. When the Dow reached 11,000 points in 1999, most non-index companies showed a decline in oil prices. Many money managers and financial advisors like to use the S&P 500 because it tracks the 500 largest companies measured by market value.

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