The Dow Jones Industrial Average is an often quoted index representing the stocks of 30 companies that are considered major players in their industries. It consists of stocks mainly from the New York Stock Exchange (NYSE) with a few from Nasdaq listed stocks. Today it tracks the fortunes of companies such as Apple and Goldman Sachs and is looked upon as an indicator of the strength and prospects of the US economy as a whole.
The DJIA dates back to 1896 where of course, the constituents of the index looked very different.
The DJIA in 1896
The DJIA was created in 1896 with 12 stocks, with General Electric being the only stock that is still in the index today. At the time, each company loosely represented a major industry and so the DJIA was taken to be representative of the overall US economy.
|American Cotton Oil||Manufacturing|
|Chicago Gas||Oil and Gas|
|Distilling & Cattle Feeding||Manufacturing|
|General Electric||Electricity, Various|
|Laclede Gas||Oil and Gas|
|North American Company||Energy, Utilities|
|Tennessee Coal & Iron||Mining|
With the industrial era coming to close around 1914 at the start of WW1, and electricity becoming widespread, the economy shifted towards consumer goods and almost all of the industrial companies above became less prominent in the US economy.
The DJIA today
Today the DJIA continues to represent the major players in a broad range of industries. As the index today represents a smaller proportion of total companies than in the past, it is perhaps less of an absolute reflection of the strength of the American economy than it has been previously. Interestingly, the majority of the current constituents of the DJIA weren’t in the index prior to 1990.
|American Express||Consumer finance|
|Boeing||Aerospace and defense|
|Caterpillar||Construction and mining equipment|
|Chevron||Oil & gas|
|Cisco Systems||Computer networking|
|Du Pont||Chemical industry|
|ExxonMobil||Oil & gas|
|Goldman Sachs||Banking, Financial services|
|The Home Depot||Home improvement retailer|
|IBM||Computers and technology|
|Johnson & Johnson||Pharmaceuticals|
|Procter & Gamble||Consumer goods|
|UnitedHealth Group||Managed health care|
The most recent companies to be added are Goldman Sachs, Visa, Nike and Apple.
The index today reflects a change towards a more consumeristic society, where the largest companies are servicing the needs and wants of a global population with ever rising disposable incomes.
Industries such as finance and insurance have also been switched into the index over time reflecting the importance of financial products to both the consumer and business.
The addition of Apple was a nod to the importance of technology within the US economy and with the industry at the forefront of innovation, it wouldn’t be a surprise to see further additions from the technology industry.
It is interesting to note the sheer number of companies that have been switched out of the DJIA over the years, reflecting changes in how the country’s economy is driven. Today, the largest US industries and companies seem unstoppable, with a global reach, strong balance sheets and an appetite to innovate. However, history tells us that there are no certainties and that the morphing climate of a country and its people can change the business landscape in a very short space of time.