Dow 101: The Dow and how it works

Published on NewsOK Modified: July 3, 2014 at 1:58 pm •  Published: July 3, 2014

The Dow Jones industrial average, an index of 30 U.S. blue-chip stocks, is the oldest barometer of the stock market. On Thursday, it jumped above 17,000 for the first time in its 118-year history.

WHAT IS IT?

The Dow is a group of 30 big corporations, nearly all of them household names, and its dips and jumps during the trading day reflect changes in their share prices. Its exclusive roster runs from American Express to Walt Disney. Other indexes, such as the Standard & Poor's 500, open their doors to many more companies, providing a better overall picture of the market's performance.

The Dow may not be the best measure, but the oldest index remains the best-known shorthand for the stock market.

BEGINNINGS

In the late 19th century, following a number of bubbles and busts, most investors considered the stock market a dangerous place. Charles H. Dow created his index, in part, to make the market easier to understand.

The original Dow Jones industrial average had 12 big businesses including American Cotton Oil, National Lead and Laclede Gas Light Co. Dow first published his average on May 26, 1896; later that year, The Wall Street Journal began running it in the daily paper.

A SELECT GROUP

The number of companies making up the index expanded to 20 in 1916 and then to 30 in 1928. The number has remained the same since then, though the cast of characters changes every few years. Last September, Goldman Sachs, Nike, and Visa replaced Alcoa, Hewlett-Packard and Bank of America.

Entry is restricted to a company that "has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors," according to the Dow's managers.

LONGEST-STANDING MEMBER

General Electric Co. is the only remaining original member. The industrial giant dropped out of the average for brief spells but returned for good in 1907.

BEST DAYS

The Dow's biggest point jump was on Oct. 13, 2008, when the average soared 936.42 points, or 11 percent, to close at 9,387.61. That followed the announcement of a European plan to bail out financial institutions.

Its biggest percentage jump was more than 15 percent when it reopened on March 15, 1933, during the Great Depression. The newly inaugurated President Franklin D. Roosevelt had shut down the banking system earlier that month. During this extended bank holiday, Congress passed a law to shore up the financial system and Roosevelt created the country's first insurance for bank deposits.

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