What is the Dow Jones?
Updated on August 24, 2026 · by Alex
The Dow Jones Industrial Average is an index of just 30 large American companies, chosen by a committee. Its quirk is that it weights by share price rather than by company size, which makes it the most quoted and the least representative of the three big indices.
It is the oldest index still in use: it dates back to 1896. And it has carried a design decision from then that has no technical defence today.
The Dow weights by share price. A company whose stock trades at 600 dollars counts twice as much as one at 300, even if the second is worth four times more as a business. That is arbitrary: a share price says nothing about the size of the company, only about how many pieces it is cut into. A split — which changes absolutely nothing about the company's value — cuts its weight in the index overnight.
On top of that, these are 30 companies picked by a committee with no public formula. There is no replicable rule as there is for the S&P 500.
Inertia and the press. It is the number on the evening news, the one in the headlines, the one people associate with “the stock market”. When someone outside finance says the market fell a thousand points, they mean the Dow.
And as narrative it has value: its 30 members are mature, large companies from traditional sectors. When the Dow holds up on a day the Nasdaq is collapsing, that describes a real rotation of money into more defensive businesses.
Using it as the benchmark for your own portfolio. That is what the S&P 500 is for. Comparing your return against the Dow does not tell you whether you did well: it tells you how you did against 30 companies weighted by a rule nobody would choose if the index were designed today.
The other mistake is reading its moves in points. “The Dow fell 800 points” sounds catastrophic and means nothing without the percentage: on 44,000 points that is under 2%. Points grow with the level of the index; the percentage is the only thing comparable over time.
