By Diana Palmieri
Folks seem to be paying a bit more attention to the stock market these days as all you seem to hear is about the volatility that’s been surrounding it lately. One-hundred point swings in the Dow Jones Industrial Average (DJIA) have become common. I thought it would be interesting to discuss a little history behind the DJIA. There are many indexes that make up what the whole stock market actually, but the most followed and common major index is the DJIA.
Let’s start with what stocks make up the Dow Jones Industrial Average, also know as the Dow 30. The industrial average started out with 12 components in 1896, rising to 20 in 1916. The 30-stock average made its debut in 1928, and the number has remained constant ever since. Of those 12 original stocks, only General Electric remains.
And here are the Dow 30…..
|MMM – 3M Company||INTC – Intel Corporation|
|AA – Alcoa Company||IBM – International Business Machines|
|AXP – American Express||JNJ – Johnson & Johnson|
|T – AT&T Corporation||JPM – JP Morgan Chase|
|BAC – Bank of America Corporation||KFT – Kraft Foods|
|BA – Boeing Corporation||MCD – McDonald’s Corporation|
|CAT – Caterpillar Corporation||MRK – Merck & Company|
|CVX – Chevron Corporation||MSFT – Microsoft Company|
|CSCO – Cisco Systems||PFE – Pfizer Corporation|
|KO – Coca Cola||PG – Proctor & Gamble|
|DD – E I Du Pont De Nemours & Company||TRV – Travelers Company|
|XOM – Exxon Mobil Corporation||UTX – United Technologies Corporation|
|GE – General Electric||VZ – Verizon Communications|
|HPQ – Hewlett Packard||WMT – Walmart Stores|
|HD – Home Depot||DIS – Walt Disney Company|
These 30 stocks are large cap, blue chip American companies that encompass several sectors of the marketplace. The founders of this average, as well as the Wall Street Journal and Dow Jones Newswires, were Charles Dow, Edward Jones, and Charles Bergstresser.
The Dow ‘average’ is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system. Simply put, the editors at the Wall Street Journal add up the prices of all the stocks and then divide by the number of stocks in the index. (In actuality, the divisor is much higher today in order to account for stock splits that have occurred in the past.)
The choices of stock within the Dow 30 are the job of the editors of the Wall Street Journal. They really don’t change around the stocks often; they believe that stability of composition enhances the trust that many people have in the averages. The most frequent reason for changing a stock is that something is happening to one of the components such as being acquired. Whenever one stock is changed, the rest are reviewed.
The Largest Swings…..
October 19, 1987, also know as Black Monday, was the biggest drop in the Dow in its history in terms of percentages. The Dow closed down 22 percent, or 508 points in one day. There’s still controversy to this day on the cause, but there was talk about electronic trading issues.1
The largest drop in terms of points in one day was September 29, 2008, when congress rejected the government’s $700 billion dollar bailout plan. The Dow closed down 777 points, overstepping the September 17, 2001, close of 684 points (the first day the Dow opened after 9/11). This day knocked out $1.2 trillion dollars in market value.2
Onto the best Dow days in points….October 13, 2008, the average closed up 936.42. I remember that clearly, and really could not believe my eyes. This was because of investors thinking the worst of the credit crisis was over (what did they know?).3 In terms of percentages, the biggest gain was March 15, 1933, at 15.34 percent or 8.26 points, as investors felt the end of a terrible bear market.
In closing, The DJIA is designed to give us a general feel of the markets overall. Events in the United States and abroad affect the markets daily, and this shows in the DJIA as well as several other indices. The DJIA is the best-known market indicator in the world, partly because it is old enough that many generations of investors have become accustomed to quoting it, and partly because the U.S. stock market is the globe’s biggest.
1. www.Investopedia.com, Stock Market Crash of 1987. Web site.
2. www.cnn.com, Stocks Crushed, 9/29/2008. Web site.
3. www.cnn.com, Raging Bulls, 10/13/2008. Web site.
Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB.