The oldest stock market index, the Dow Jones Industrial Average (DJIA), was started on May 26, 1896 by financial reporter Charles Dow. At its inception, the DJIA started with just 12 stocks and was priced at 40.94, far from todays levels. The index is calculated officially on a price-weighted basis. In other words, stocks with higher prices are given a greater weighting in the index than lower-priced stocks (regardless of each company's actual size). The Dow tracks 30 of the largest public companies in the stock market and is the most frequently quoted index when discussing how the market is doing. When the media reports on how the market fared you'll likely see them report on the closing price and daily change of the Dow. It has survived as a gauge of market activity for over a century and is found to be highly correlated to more diverse indices like the S&P 500. The companies within the Dow Jones have changed during its existence. The only original company from 1896 is General Electric. Changes occur for reasons such as mergers and bankruptcy and some are done to reflect changing times. The index broke tradition and added leading technology names Microsoft and Intel in 1999. The Dow doesnt reflect industrial activity adequately as it includes companies such as Citigroup, Home Depot, Walt Disney, and Microsoft. The list below shows each of the eleven 1,000 point DJIA milestones and how long it took to reach that point. Milestone Date How Long It Took 1,000 Nov 14, 1972 76 years
2,000 Jan 08, 1987 14 years
3,000 Apr 17, 1991 4 years
4,000 Feb 23, 1995 4 years
5,000 Nov 21, 1995 9 months
6,000 Oct 14, 1996 11 months
7,000 Feb 13, 1997 4 months
8,000 Jul 16, 1997 5 months
9,000 Apr 6, 1998 9 months
10,000 Mar 29, 1999 12 months
11,000 May 3, 1999 1 monthThe Dow took 76 years to hit its first milestone but it took less time to reach the next ones because the higher the Dow, the easier it is to jump 1,000 points. Most of the milestones occurred during the 1982-1999 bull market. Some argue that the Dow is outdated and does not truly represent the overall market because it is price weighted and only contains 30 companies. When the Dow reached the 11,000 point milestone in 1999 the majority of non-index companies exhibited declining or lackluster stock price movement. Many money managers and financial advisors prefer to use the S&P 500 because it tracks the 500 largest companies measured by market value. |
