The Dow Jones Industrial Average, or "the Dow", is one of the most widely followed stock market indexes, probably because it was the world's first stock market index, having been invented in 1896. The Index currently consists of 30 large and well-known U.S. companies covering all industries with the exception of transportation and utilities. The list of the 30 stocks has of course changed over the past 100 years. Stocks are selected by a committee that consists of three people from Standard & Poor's and two editors of The Wall Street Journal. To be eligible, a stock must be a member of the S&P 500 Index. Changes to the Index are made on an as-needed basis. There is no annual or semi-annual reconstitution. Rather, changes in response to corporate actions and market developments can be made at any time. The 30 stocks currently in the Dow are listed on our webpage stocks in the Dow Jones Industrial Average.
The Dow is unique in that it is market price weighted rather than weighted by market capitalization. Most "modern" stock market indexes like the S&P 500 and the NASDAQ-100 are weighted by market capitalization rather than price weighted.
Because the Dow is market price weighted, in recent years the biggest changes to the Dow have happened in response to an existing member of the Dow, like Apple, announcing a stock split. Stock splits don't affect indexes that are weighted by market capitalization but they can have a big effect on the Dow. For example, if Apple's stock is trading at $1,000 per share and then Apple announces a 1-4 stock split, Apple's stock will start trading at $250 per share after the split. Such a stock split would have a big affect on the Dow, since the Dow is market price weighted. Apple's percentage share of the Dow would go down by 75%. Since Apple is a technology stock, the technology sector's percentage weight in the Dow might also go down. Because the committee that manages the Dow wants the Dow to be representative of the stock market, the committee is often forced to make changes to the Dow in response, typically by adding another technology stock to the Dow (and removing an existing member that is not a technology stock) so that Apple's drop in percentage is offset by the new member.
On our website, we use the GICS sector classification system to classify stocks into sectors. Let's look at the current breakout of the Dow Jones Industrial Average by sector:
|GISC Sector||# of Stocks||Market cap||%||# of Stocks||Market cap||%|
When we say "total market" in this article, we are talking about all common stocks, REITs and mortgage REITs of U.S. companies that trade on the U.S. stock market. So that excludes MLPs, preferred stocks, ADRs, and investment funds, and the common stocks of non-US companies that trade on the U.S. stock market. In terms of market capitalization, the Dow currently captures 21.6% of the total market.
The Dow Jones Industrial Average is considered to be a "large cap" or "large capitalization" stock index. But as explained in our article size categories, there is no standard definition of what makes up a "large cap" stock. Each of the major index providers (MSCI, S&P, NASDAQ, FTSE Russell) uses a different approach to build "large cap" indexes. On our website, we use a cutoff of $10 billion to determine a large cap stock. This is a just a widely used rule of thumb that we have also chosen to use. Similarly, a "mid cap" stock under our definition is a stock with a market capitalization between $2 billion and $10 billion.
Let's look at the stocks in the Dow Jones Industrial Average based on the size categories we use:
|Size Category||# of Stocks||Market cap||%||# of Stocks||Market cap||%|
Can the 30 stocks in the Dow really be representative of the stock market as a whole? In other words, can a stock market index invented in 1896 still be relevant in today's world of computers? The Wilshire 5000 Total Market Full Cap Index, symbol W5000, includes virtually all U.S. equity securities, weighted by market capitalization. How has the Dow performed in recent years compared to the market as a whole (i.e. W5000)?
The above makes clear that the Dow tracks the overall market pretty closely, even though it consists of just 30 large cap stocks. Remember, in terms of market capitalization, the Dow currently captures 21.6% of the total market. So that probably explains why the Dow continues to be widely quoted, along with the S&P 500 Index and the NASDAQ-100 Index.
Over long periods of time, common stock dividends make up a significant portion of the return an investor makes on an investment in a common stock. How do the dividends on the Dow stocks compare to the overall market? Using the data in our database as of today, here are the current market capitalization weighted average dividend yields of key indexes and the stock market as a whole:
|Category||Stock Count||Average Dividend Yield|
The S&P 500 Index consists of 500 hand picked U.S. common stocks that are intended to be representative of the stock market as a whole.
The NASDAQ-100 Index consists of the largest 100 companies listed on the NASDAQ stock exchange that are not considered to operate in the financial sector of the economy. It has become synonymous with technology growth stocks.
The Russell 1000 Index consists of the largest 1,000 U.S. common stocks based on market capitalization.
The Russell 2000 Index consists of the smallest 2,000 U.S. common stocks in the Russell 3000 Index, which includes the largest 3,000 U.S. common stocks based on market capitalization. The Russell 2000 Index is one of the most popular "small cap" indexes.
Because the Dow Jones Industrial Average is so widely followed, there are a lot of exchange traded funds ("ETFs") that track the Dow:
|Symbol||Description||Inception Date||Leverage Factor||Market cap|
|DDM||ProShares Ultra Dow30 ETF||06/19/2006||2.00||$365,805,000||Analyze|
|DIA||SPDR Dow Jones Industrial Average ETF||01/13/1998||1.00||$30,267,524,200||Analyze|
|DOG||ProShares Short Dow30 ETF||06/19/2006||-1.00||$259,265,427||Analyze|
|DXD||ProShares UltraShort Dow30 ETF||07/11/2006||-2.00||$124,695,600||Analyze|
|SDOW||UltraPro Short Dow30 (3x) ETF||02/09/2010||-3.00||$936,728,302||Analyze|
|UDOW||UltraPro Dow30 (3x) ETF||02/09/2010||3.00||$648,721,500||Analyze|
All data is a live query from our database. The wording was last updated: 09/25/2020.
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