There are several ways to measure the performance of the stock market, including using the Dow Jones Industrial Average. But what is the Dow Jones?
To be exact, the Dow Jones, which is also known as the Dow or the DJIA, is a price-weighted index of 30 blue chip stocks on the New York Stock Exchange (NYSE) and the Nasdaq. These companies are well-established with strong fundamentals and are typically considered to be lower risk. The Dow measures the price action of these stocks, which helps show investors the direction of the equities market.
The Dow Jones Industrial Average has been around since 1896, which makes it the longest benchmark of the U.S. stock market. There were originally 12 companies that made up the index – all industrial stocks – including GE Aerospace (GE), formerly known as General Electric, with the Dow getting up to 30 members by 1928.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The DJIA first began trading at 40.9 points, and didn't surpass the 1,000 level until 1972. Its all-time high of 40,842 was hit on July 31, 2024.
How does the Dow work?
The Dow Jones has a unique aspect that makes it stand out from many of the other indexes that track the U.S. stock market. Specifically, the DJIA is price-weighted, rather than capitalization-weighted.
What does this mean?
While indexes such as the S&P 500 allow for higher weightings based on a component's market capitalization, or market value, the Dow gives greater weighting to stocks with higher share prices. And those stocks have a greater impact on the movement of the Dow Jones Industrial Average.
For example, the current share price for healthcare stock UnitedHealth Group (UNH) is around $580, while semiconductor stock Intel (INTC) trades closer to $20. This means that UNH has an outsized weighting (9.5%) in the Dow vs INTC (0.3%), and its price movements have a greater sway on the Dow index performance.
So, say for instance UnitedHealth rises by $10 and INTC moves up by just $5, UNH stock will have a two times greater influence on the index performance. However, the percentage change for UNH stock is only about 2% compared to a 25% move for Intel.
Meanwhile, Apple (AAPL), with its $3.4 trillion market capitalization, is six times the market cap of UnitedHealth, but its weighting in the Dow is less than half of UNH. But in the S&P 500, AAPL's weighting is 7% vs 1.2% for UNH and 0.2% for INTC given it is a market-cap weighted index.
Some have criticized the Dow for this type of disparity in market caps. Nevertheless, over time, higher-priced stocks in the Dow have tended to correlate with higher market capitalizations.
Why is the Dow important?
The actual calculation of the DJIA performance is more complex than this. As a result, this has helped the Dow index gain a dedicated following as an authentic representation of the market’s performance.
Still, many institutional investors and index investors prefer to mimic market-cap weighted indexes like the S&P 500 rather than the Dow. But the DJIA remains a key indicator of the health of not only the stock market, but also the economy, as the companies included in the index tend to be industry leaders with both positive and stable earnings.
Can I invest in the Dow Jones?
While investors cannot trade the Dow directly because it is an index, meaning it strictly measures the average price of the stocks it tracks, there are ways to gain exposure to it.
For one, investors can buy shares in the individual Dow stocks.
Investors can also easily purchase exchange-traded funds (ETFs) that track the index. Some of the best ETFs to do this include the SPDR Dow Jones Industrial Average ETF Trust (DIA) and the iShares Dow Jones US (IYY).
Related content
- Stock Picks That Billionaires Love
- Best Dividend Stocks to Buy for Dependable Dividend Growth
- Dollar-Cost Averaging Into Stocks: How Does DCA Investing Work
-
Don't Miss Out! A Quiz on Medicare Enrollment DeadlinesQuiz Test your basic knowledge of Medicare enrollment periods in our quick quiz.
-
A New 2026 Tax Deduction Change for People Over Age 65Tax Changes Adjustments to the extra standard deduction can impact the tax bills of millions of older adults. Here are some new amounts to know for 2026.
-
A 'Fast, Fair and Friendly' Fail: Farmers Irks Customers With Its Handling of a Data BreachFarmers Insurance is facing negative attention and lawsuits because of a three-month delay in notifying 1.1 million policyholders about a data breach. Here's what you can do if you're affected.
-
Serving the HNW Market: How Financial Advisers Can Break Through and Deliver Lasting ValueFinancial advisers have a significant opportunity to serve high-net-worth clients by elevating their capabilities, delivering comprehensive planning, building diverse teams and prioritizing family wealth education.
-
Don't Just Sell, Connect: How Financial Advisers Can Ignite Their Sales GrowthAvoid complacency and embrace small, consistent improvements to optimize your sales process and results.
-
Dow Adds 587 Points as Stocks Bounce: Stock Market TodayThe main indexes rebounded sharply Monday after President Trump took a calmer stance toward China.
-
Are You a Small Business Owner Buckling Under Economic Pressure? Here's How You Can CopeSignificant emotional and financial challenges, including tariff worries, are piling up on small business leaders. Here's how leaders can develop more healthy coping strategies and systems of support.
-
To Raise Prices or Not to Raise Prices: Tariff Tips for Small BusinessesSmall businesses are making critical decisions. Should they pass on higher costs due to tariffs, or would that only cost them more in lost customers?
-
Five Retirement Planning Traps You Can't Afford to Fall Into, From a Wealth AdviserTo help ensure you reach your savings goals and enjoy financial security in your golden years, be aware of these common pitfalls. The key is to be proactive, informed and flexible.
-
Your 401(k) Can Now Include Alternative Assets, But Should It? A Financial Adviser Weighs InMany employer-sponsored plans offer limited investment options, which can stunt growth. But participants considering alternatives might need some sound advice to get the most from their accounts.
