The Dow Jones Industrial Average (DJIA), often referred to simply as “the Dow,” is one of the oldest and most widely recognized stock market indices in the world. Created by Charles Dow and Edward Jones in 1896, the DJIA originally included just 12 companies, mainly from the industrial sector. Today, the index tracks the performance of 30 prominent publicly traded companies across various industries, reflecting the broader U.S. economy.

Unlike many indices that are market capitalization-weighted, the DJIA is a price-weighted index. This means that companies with higher stock prices have a greater impact on the index’s performance, regardless of their overall market value. As a result, stock splits and other corporate actions can significantly influence the index’s composition and performance.

The selection criteria for the DJIA are determined by the editors of The Wall Street Journal. Companies are chosen based on their reputation, sustained growth, and interest to investors. The goal is to ensure the index accurately represents the economic landscape of the United States. The DJIA is reviewed regularly, and components are replaced as needed to maintain this representation. Rebalancing occurs when a constituent company undergoes significant changes, such as mergers or financial distress, or when a new company better reflects the current economic environment.

The DJIA serves as a barometer for the overall health of the U.S. stock market and the economy. It is closely followed by investors, analysts, and economists worldwide, making it a crucial tool for understanding market trends and making informed investment decisions.

market health. As of early 2024, the S&P 500’s aggregate market cap exceeds $43 trillion. This index is capitalization-weighted, meaning that larger companies have a greater impact on its performance. Major constituents include industry giants like Apple, Microsoft, Amazon, and Alphabet. While the index comprises 500 companies, it actually has 503 components because three companies have two share classes listed. The index is rebalanced periodically to ensure it remains representative of the U.S. equity market. It plays a crucial role in economic forecasting and is often referenced by its ticker symbols ^GSPC, INX, and $SPX.