What is the Dow Jones Industrial Average Stock Index?
The Dow Jones Industrial Average (DJINDICES:^DJI) is a stock index that tracks 30 of the largest U.S. companies. Created in 1896, it is one of the oldest stock indexes, and its performance is widely considered to be a useful indicator of the health of the entire U.S. stock market. The Dow Jones Industrial Average index is managed by S&P Dow Jones Indices, a joint venture majority-controlled by the financial information and analytics company S&P Global (SPGI -0.69%).
The Dow Jones Industrial Average does not include just industrial stocks, but also stocks from most sectors and industries, except for utilities and transportation, which are measured by other indexes specific to those fields.
According to S&P Global, the Dow Jones Industrial Average is a "world-renowned gauge of the U.S. equity market." Most Dow Jones Industrial Average-listed companies trade on the New York Stock Exchange.
How is the value of the Dow Jones Industrial Average calculated?
Most stock market indexes are weighted by market capitalization -- equal to share price times the number of shares outstanding -- but the Dow Jones Industrial Average is price-weighted. The value of the Dow Jones Industrial Average is calculated by determining the average value of the stock prices of the 30 listed companies. However, calculating that average value is not as simple as totaling the 30 stock prices and dividing by 30.
Mergers, spinoffs, stock splits, and other developments complicate the arithmetic and require a committee to formally determine a "Dow divisor" -- the denominator by which the sum of the 30 share prices is divided. As of November 2024, the Dow divisor was 0.162684. Using this divisor, you can calculate the value of the Dow Jones Industrial Average by adding up the share prices of all 30 Dow companies and dividing that amount by 0.162684.
Any change in the share price of any Dow-listed company affects the value of the index equally, in accordance with Charles Dow's original vision. But it’s important to realize that, on a percentage basis, the movements of the highest-priced stocks have the greatest impact on the index's value.
For example, the highest-priced stock on the Dow in early March 2025 was Goldman Sachs, trading at $567.67. The lowest-priced stock was Verizon, trading at $44.23. Since Goldman's stock price is about 13 times greater than Verizon's, Verizon's share price would have to change by 13% to have the same impact on the Dow as a change of just 1% in the price of Goldman stock.
The Dow Jones Industrial Average vs. the S&P 500 and the Nasdaq Composite
The Dow Jones Industrial Average is just one of three major indexes that many investors use to measure the performance of the stock market. The other two are the S&P 500 (SNPINDEX:^GSPC) and the Nasdaq Composite (NASDAQINDEX:^IXIC).
The S&P 500 is an index of 500 large-cap stocks that are chosen using certain criteria, such as market cap and profitability, by a committee of the S&P Dow Jones Indices. The Nasdaq index tracks more than 2,500 stocks, or almost every stock traded on the Nasdaq Exchange.
Other major market indexes
Most professional investors focus on the performance of the S&P 500 because it includes a broad range of stocks and is weighted by market cap, which is a more accurate way to measure the overall health of the stock market. The Dow Jones Industrial Average may not be as comprehensive or precise as the S&P 500 or a total market index such as the Wilshire 5000 Total Market Index (NASDAQMUTFUND:WFIV.X), but this long-standing index still serves as a good indicator of the stock market’s overall direction and functions as a convenient short list of some of the most powerful companies in the U.S.
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