What is the Dow Jones Industrial Average, or ‘the Dow’?
Editorial staff, J.P. Morgan Wealth Management
- The Dow Jones Industrial Average (the Dow) is a price-weighted market index comprising stocks of 30 blue-chip companies that trade on the New York Stock Exchange (NYSE) and the Nasdaq.
- The index was created by Charles Dow in 1896 as a gauge of U.S. stock market performance.
- The stocks in the Dow are not necessarily the 30 largest companies but are chosen because of their relevance to the current U.S. economy.
- You can’t directly invest in the index, but you can invest in companies that make up the Dow, as well as an index fund or an exchange-traded fund (ETF) that tracks its composition and performance.
You might have heard news reports that mentioned the Dow Jones Industrial Average when talking about the performance of the stock market. But what exactly is the Dow and why does it matter? We break it down for you.
The Dow is a market index that is made up of the stocks of 30 blue-chip companies that trade on the New York Stock Exchange (NYSE) and the Nasdaq. Commonly known as the Dow 30, or simply the Dow, this index is named after its creator, journalist Charles Dow, and his business partner Edward Jones.
When was the Dow created?
The Dow launched in 1896 and consisted of 12 companies that were primarily in the industrial sector. At that time, the performance of industrial companies, especially those tied to industries such as cotton, gas, sugar, tobacco and oil, was closely linked to the performance of the overall U.S. economy.
To keep up with changes in the U.S. economy over more than a century, the Dow is now composed of 30 stocks that represent most major parts of the economy, except the utility and transportation sectors. The stocks from these sectors are represented by the Dow Jones Utility Average and the Dow Jones Transportation Average, respectively.
The expansion from 12 to 30 companies happened in two stages. The first stage was in 1916 when the index grew to 20 stocks, and the second stage happened in 1928 when the number of stocks increased to 30, its current number.
Does market cap affect the Dow?
Simply put, it doesn’t. The Dow is a price-weighted index, so a company’s market capitalization doesn’t determine its weight (unlike other indexes, like the S&P 500, which is market-cap-weighted).
Market capitalization is the current market value of a publicly traded company. It’s calculated by multiplying the current share price by the total number of shares outstanding. For example, 100 million shares at $15 per share equals a market cap of $1.5 billion. A point of note – this is not its intrinsic value, which is an estimate of what the company is worth, but rather what the market is currently pricing it at.
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What does it mean that the Dow is price-weighted?
Because the Dow is a price-weighted index, stocks with a higher price per share will have a greater weight in the index. In other words, a given dollar move in a higher-priced stock will generally have a proportionally larger impact on the index than the same dollar move in a lower-priced stock.
How are the Dow companies selected?
Companies included in the Dow are typically large, established U.S. companies (many are also in the S&P 500 index), excluding stocks in the transportation or utilities sectors. Unlike the S&P 500, one of the broadest large-cap indexes, the companies in the Dow are not necessarily the 30 largest companies. Rather, they are chosen because of their significance in their respective sectors.
The key point is that there isn’t a quantitative rules-based methodology for selecting the stocks that make up the Dow. Usually, changes are made in response to corporate or market developments. Essentially, the companies selected must be relevant to the current U.S. economy.
The components are chosen by the Averages Committee, which is made up of three representatives of S&P Dow Jones Indices and two representatives of The Wall Street Journal.
That said, there are a few guideposts that the committee follows in the selection process. These include:
- The company must be a large, well-established U.S. company listed on a major U.S. exchange such as the NYSE or the Nasdaq.
- The company must be incorporated and headquartered in the U.S., or otherwise qualify as a U.S. company under the committee’s judgment.
- The company should have a good reputation, demonstrate sustained growth and be of interest to a large number of investors, as judged by the committee.
- The committee tries to ensure that there is adequate sector representation.
What sectors are represented in the Dow?
The market sectors represented in the Dow are based on the Global Industry Classification Standard (GICS), which was developed by MSCI and S&P Dow Jones Indices in 1999. The sector allocation of the 30 stocks is as follows:
The Dow sector allocation
Sector | Allocation |
|---|---|
Financials | 26.7% |
Industrials | 18.9% |
Information Technology | 16.1% |
Health Care | 13.2% |
Consumer Discretionary | 10.3% |
Communication Services | 5.2% |
Materials | 3.9% |
Consumer Staples | 3.9% |
Energy | 1.9% |
Source: S&P Dow Jones Indices, “Dow Jones Industrial Average.” (June 30, 2026)
What are common criticisms of the Dow?
As with anything in life, the Dow does have its critics. Some believe the Dow is not as good a barometer of the U.S. stock market’s health because it includes so few companies. These critics often prefer the S&P 500, which tracks 500 of the largest U.S. companies on the market.
Also, some dislike the price-weighted methodology used in the Dow, arguing that one company in the index can exert a disproportionate influence simply because its stock trades at a higher price than a company that is larger by market value.
Finally, critics point to the subjective selection process used to include companies in the index.
Nevertheless, when you read a headline about how the stock market is performing, you will probably see the Dow’s number cited as a snapshot of market performance.
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Editorial staff, J.P. Morgan Wealth Management
