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What the Dow is
The Dow Jones Industrial Average, often just called the Dow, is a stock index that follows 30 large, well-known US companies. When the news says the market rose or fell by a certain number of points, it is often referring to the Dow.
It was created in the late 1800s and is the oldest widely followed US stock index. Despite the word industrial in its name, today it includes companies from many sectors, from technology to healthcare to consumer brands.
How it is calculated
The Dow is unusual because it is price weighted. That means a company with a higher share price has more influence on the index than one with a lower share price, regardless of how large the businesses actually are.
This is different from most modern indexes, which weight companies by their total market value. As a result, a high-priced stock can sway the Dow more than a much larger company that happens to trade at a lower share price, which many analysts see as a quirk of its old design.
💡 Points are not percentages:A move of several hundred points on the Dow sounds dramatic, but what matters is the percentage change. Because the index sits at a high number, a given point move is a smaller percentage than it once was. Always check the percent, not just the points.
The Dow versus the S&P 500
The S&P 500 tracks about 500 companies and weights them by size, so it gives a broader and more representative picture of the US stock market. The Dow tracks only 30 and weights them by price, so it is narrower and can behave differently.
Both are useful. The Dow is a familiar headline gauge with a long history, while the S&P 500 is the benchmark most investors and index funds actually follow. When people talk about how the market did, they may mean either one.
| Feature | Dow Jones | S&P 500 |
|---|---|---|
| Companies | About 30 | About 500 |
| Weighting | By share price | By company size |
| Best described as | A famous headline gauge | A broad market benchmark |
A simplified comparison of the two most quoted US stock indexes.
How investors use it
For most people, the Dow is a quick daily read on how large US companies are doing, not a portfolio tool. Because it holds so few names and weights them oddly, few investors try to track it precisely.
If you want to invest in the broad US market, index funds far more commonly follow the S&P 500 or a total market index. The Dow remains most useful as a piece of financial shorthand that everyone recognizes.
Frequently asked questions
How many companies are in the Dow?
The Dow Jones Industrial Average holds 30 large US companies. The specific names change occasionally as the committee behind the index swaps businesses in and out to keep it representative of major American firms.
Why is the Dow price weighted?
It is a leftover from its 1800s origins, when a simple average of share prices was the practical way to build an index. Weighting by price rather than company size is now considered a quirk, but the method has been kept for continuity and history.
Is the Dow or the S&P 500 better?
They serve different purposes. The S&P 500 is broader and weighted by company size, so it better represents the overall US market and is what most index funds follow. The Dow is a narrower, famous headline gauge. Neither is simply better than the other.
Can I invest in the Dow?
Yes, there are funds that track the Dow, though far more index funds follow the S&P 500 or a total market index. For broad exposure to US stocks, those wider benchmarks are the more common choice.
Related tools and pages
These are for learning. Any calculator here shows example scenarios, not predictions of future prices.
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