MUMBAI: Dow Industrial Average, Charles Dow’s creation, today celebrated its 125th anniversary and a journey that has defined the global economy as much as it has represented the fortunes of the world’s largest economic powerhouse, the United States.
In the index’s 125-year history, it has survived two ghastly World Wars, two damaging pandemics, 23 US presidencies and countless recessions and remained the icon of capitalism alongwith the city of New York, where it is homed.
Charles Dow created the index consisting originally of 12 railroad stocks, the then backbone of the US economy. However, Dow soon realized that he needed broader representation of the US economy and included several new-born industrial companies to the index. What started as a 12-stock index became a 30-stock index in 1928.
The Dow Jones Industrial Average managed returns of little less than 8 per cent annually since its inception. The index scaled the key milestone of 100 points within a decade of its launch, but took 66 years to reach the 1,000-point mark in 1972.
From there, the index rallied and rallied sharply to 10,000 points within 27 years as the US economy became the symbol of capitalist pride and the home of neoliberal economics.
The stock index’s moment in the sun came in the roaring bull market of the 1920s when the stock market became a household in America before it all came crashing down in the violent crash of 1929, which marked the beginning of the Great Depression.
“Through its historical continuity, the Dow connects us to our financial past and offers valuable lessons, while also reflecting the current state of the market to millions of investors around the world each day. It doesn’t get closer to Charles Dow’s original vision than that,” S&P Dow Jones Indices, which manages the index, said.
In its illustrious 125-year history, the index has had some days of sharp run-up and some days of meltdown–From the Black Monday of 1987 to the harrowing days of the Great Financial Crisis to the rollercoaster ride of March 2020.
Of the top 10 best daily percentage gains for the index, only three have happened in the current century with the list being dominated by dates from the 1930s despite the overall market being a severe bear market.
Similarly, the 21st century has contributed only two dates to the list of top 10 daily percentage-loss for the 30-stock index. The list is, of course, dominated by dates from the first third of the 20th century.
“The average of [stock prices] is the peg which marks the height of the waves. The price waves, like those of the sea, do not recede all at once from the top. The force which moves them checks the inflow gradually, and time elapses before it can be told with certainty whether high tide has been seen or not,” Charles Dow had written in the January 31 1901 edition of the Wall Street Journal summarizing the essence of a stock index.