Dow Jones Composite Average

Dow Jones Composite Average
Name	Dow Jones Composite Average
Foundation	0 1884
Operator	S&P Dow Jones Indices
Exchanges	NYSE, Nasdaq
Constituents	65

Dow Jones Composite Average. The Dow Jones Composite Average is a stock market index that combines the thirty industrial stocks of the Dow Jones Industrial Average, the twenty transportation stocks of the Dow Jones Transportation Average, and the fifteen utility stocks of the Dow Jones Utility Average. Published by S&P Dow Jones Indices, it serves as a broad measure of the overall United States stock market, encompassing key sectors of the economy. While less frequently cited than its more famous components, it provides a historical snapshot of American industrial, transport, and utility performance.

Overview

The index aggregates sixty-five prominent companies from three major market sectors tracked by Dow Jones & Company. It is one of the oldest continuing market measures, with its lineage tracing back to the original calculations by Charles Dow and Edward Jones. The composite offers a wider lens than any single Dow average, reflecting interconnected economic activity across manufacturing, logistics, and energy distribution. Its components are all large, established firms listed on major exchanges like the New York Stock Exchange and the Nasdaq.

History

The composite's origins are rooted in the first average created by Charles Dow in 1884, which tracked nine railroad and two industrial companies. Following the launch of the Dow Jones Industrial Average in 1896 and the transportation-focused Dow Jones Railroad Average (now the Dow Jones Transportation Average) in 1884, the concept of a combined measure evolved. The modern composite was formally established to provide a unified view, incorporating the later creation of the Dow Jones Utility Average in 1929. Its calculation has been maintained through the merger of Dow Jones & Company with News Corp and its subsequent index business partnership with McGraw-Hill Financial, now S&P Global.

Composition and calculation

The index is a price-weighted average, meaning stocks with higher share prices exert more influence on its movements, a methodology inherited from the original Dow averages. Its sixty-five constituents are selected by the committee at S&P Dow Jones Indices, considering factors like a company's reputation, growth history, and investor interest. The roster includes giants like Apple Inc., The Boeing Company, Union Pacific Corporation, and NextEra Energy. Adjustments for stock splits, spin-offs, or constituent changes are made to maintain continuity, similar to procedures for the S&P 500.

Performance and analysis

Long-term performance generally correlates with the broader American economy, though its price-weighting can lead to different trajectories compared to market-cap-weighted indices like the S&P 500. Major market events such as the Wall Street Crash of 1929, the Black Monday (1987), the Dot-com bubble, and the Financial crisis of 2007–2008 are all clearly reflected in its historical charts. Analysts sometimes examine the composite alongside the Dow Theory, which posits relationships between the industrial and transportation averages to confirm market trends.

Comparison with other indices

Unlike the market-capitalization-weighted S&P 500 or Nasdaq Composite, its price-weighting is an older, less common methodology that can skew representation. It is far narrower in scope than the Russell 3000 Index but broader than any single Dow average. While the Dow Jones Industrial Average remains the most publicized gauge, the composite offers a more sector-diverse picture, albeit still limited to only 65 stocks compared to the thousands in the Wilshire 5000 Total Market Index. Its international counterpart for broader exposure is the Dow Jones Global Titans 50.

Significance and criticism

The composite holds historical significance as a direct descendant of the earliest market indicators developed by Charles Dow. It is used by some portfolio managers as a benchmark for diversified equity funds. However, critics argue its price-weighted calculation is anachronistic and that its small number of constituents fails to accurately represent the modern, service-oriented United States economy. Furthermore, the selection process by the S&P Dow Jones Indices committee is considered less transparent than the rules-based approach of indices like the CRSP US Total Market Index.

Category:Dow Jones averages Category:Stock market indices in the United States