The New York Stock Exchange is composed of many facets and factors. One such component is a stock market index called the Dow Jones Industrial Average. The Dow Jones Industrial Average is a unit of measurement that determines the operation of the industrial sector of the American stock market.
The Dow Jones Industrial Average is named after its creator, Charles Dow. Mr. Dow was the Wall Street Journal editor in the 19th century and the co-founder of the Dow Jones & Company. Because of his work, the Dow Jones Industrial Average is the second-oldest U.S. market index.
The Dow Jones Industrial Average was first published in Customer’s Afternoon Letter, which was later renamed the Wall Street Journal. The original average, published on May 26, 1896 represented the average of twelve stocks General Electric (which is still part of the index), American Cotton Oil Company, American Sugar Company, American Tobacco Company, Chicago Gas Company, Distilling & Cattle Feeding Company, Laclede Gas Light Company, National Lead Company, North American Company, Tennessee Coal, Iron and Railroad Company in Birmingham, U.S. Leather Company and United States Rubber Company.
Despite the name of “industrial” in its title, the current 30 stocks in Dow Jones Industrial Average aren’t really industrial. The Dow Jones Industrial Average takes the stock prices of the largest and most widely held public companies in the US. Those numbers are calculated, averaged out and price-weighted to generate that index number.
The price-weighted Dow Jones Industrial Average is made of up a fraction of the index that is proportional to its price. This is done to balance the effects of market adjustments, such as stock splits. The Dow Jones Industrial Average is a “scaled average” meaning the total of all the prices is divided by a divisor, which fluctuates based on market conditions.