3 July 1884: Dow Jones launches the world’s first stock index

On 3 July 1884, the world’s first stock index, the Dow Jones Transportation Index, was published by Charles Dow.

The index was made up of 11 transportation stocks, including nine railway companies. The average was calculated by adding the price of all the shares, and dividing them by the number of stocks.

The index now contains 20 stocks, including rail companies, road haulage companies, delivery companies and marine and air transport companies. The only remaining stock from the original 11 is the Union Pacific Corporation.

Dow was a newspaper man, who, with Edward Jones and the largely forgotten Charles Bergstresser, founded Dow Jones & Company in 1882. The company’s first publication was the Customer’s Afternoon Letter, which contained financial news and share prices.

By 1889, the Letter had become the Wall Street Journal, containing four pages and selling for two cents.

Dow launched a further index, the Dow Jones Industrial Average, in 1895. This index is widely known as the ‘Dow’.

After Dow’s death in 1902, Dow Jones was acquired by financial publisher Clarence Barron. After over a century under the control of Barron’s, it was taken over by News Corporation in 2007.

The index, along with many others including the S&P 500 and the ‘Dow’, is now produced by S&P Dow Jones Indices, a joint venture between McGraw Hill Financial, the CME Group and News Corporation.

The Transportation Index is critical to ‘Dow Theory’, which states that “industrials make and transports take”. The theory is that a bull or bear market trend will have staying power if both the Industrial and Transportation indices are moving in tandem.

If the two diverge, there could be trouble. For example, if the industrial index is rising, but the transportation index is falling , the theory is that industry is producing too many goods for consumer demand, a bad sign for the economy in general.

Merryn

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