Financial History: The Dow Jones

The Dow Jones Industrial Average has endured as the most widely reported figure for measuring the state of the US economy. In 2017, the Dow demolished several records. We trace the many changes it has seen over its 120-year history

The Dow Jones Industrial Average is a stock market index that remains the definitive measure of the state of the US economy
The Dow Jones Industrial Average is a stock market index that remains the definitive measure of the state of the US economy 


Charles Henry Dow (1851-1902)

Financial reporters Charles Dow and Edward Jones first published the Dow Jones Industrial Average, an index of 12 companies that represented the biggest sectors of the US economy, in 1896. Its scope was limited and, as a price-weighted index, it favoured businesses with higher-priced shares, but it provided a simple daily indication of how the market was performing. It was originally published in the Customers’ Afternoon Letter, which would become The Wall Street Journal. Its first figure was 40.94.


The Dow became popular in the 1900s, after the New York Stock Exchange suffered several panics. The Panic of 1901 was the exchange’s first crash, caused by a battle for control of the Northern Pacific railroad. Stock prices shot up and down over just a few days. The Bank Panic of 1907, triggered by plans to curtail the popularity of trust companies, had a similar effect. Both crises had investors hungry for hourly updates on the market, which the Dow provided.


The Dow plunged after the 1929 crash

Following substantial growth, the New York Stock Exchange collapsed in 1929, creating chaos in the US economy and prompting the Great Depression. The panic selling that occurred during this time caused the Dow, which had then expanded to include 30 companies in 1928, to plummet. It reached an intraday low of 40.56 on July 8, 1932. The lasting impact on the Dow was tremendous: it took until 1954 for the index to reach its pre-depression high of 381.17.


The gradual transformation of the US economy was reflected by the companies the Dow used to calculate the index. In 1959, American Smelting, Corn Products Refining, National Steel and National Distillers were dropped for Anaconda Copper, Swift & Company, Aluminum Company of America and Owens-Illinois Glass. American Express replaced the Manville Corporation in 1982. General Foods and American Brands Incorporated were switched for Philip Morris and McDonald’s in 1985.


In January 2000, the Dow posted a result of 11,722.98 at the peak of the dotcom bubble. It would not last, however, and the market declined following the bubble’s burst. It fell 684.81 points on September 17, 2001, the first day of New York trading after the 9/11 terrorist attacks. On October 9, 2002, the Dow bottomed out at 7,286.27, its lowest result since October 1997. The Dow only fully recovered to its previous high in October 2006.


The global financial crisis caused turmoil for the Dow

The Dow fell 777.68 points on the back of US Congress rejecting the bank bailout bill, effectively cementing the beginning of the global financial crisis. On October 9, 2007, the Dow closed at 14,164.53, the index’s peak prior to the financial crisis. On March 9, 2009, the Dow hit 6,547.05, its lowest point during the crisis. In terms of percentage this was not as significant as the Great Depression, but still prompted turmoil. The Dow recovered to its pre-crisis peak in March 2013.


Apple was added to the Dow, replacing AT&T. The company’s addition illustrated the Dow’s limitations. Since the first iPhone was released in 2007, Apple had been one of the most influential companies in the world, responsible for the most defining gadget of modern times. However, the company’s growth during this period had not been calculated in the Dow. Today, the index still does not include Facebook or Alphabet. General Electric, one of the original 12 companies, is still on its list.


The Dow broke several notable records in 2017

The Dow broke several significant records in 2017, surpassing 23,000 for the first time in October and then 24,000 in November. The string of growth can be partially attributed to Boeing and Caterpillar, which both enjoyed a strong year, although the entire US market boasted favourable results. While it isn’t a serious tool for investors, the Dow Jones still receives plenty of fanfare for surpassing milestones such as these, and provides a simple tool for historical comparison.

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