Index Still Symbol of U.S. Stock Market

For better or worse, the Dow Jones industrial average has long been the numerical representation of the American stock market--and American capitalism in general.

Through the years, the 30-stock Dow index has endured countless barbs from critics who say it doesn’t fairly reflect the U.S. market or the economy.

And yet, “the answer to the question, ‘What’s the market doing?’ is still, ‘Here’s how the Dow is doing,’ ” notes John Downes, editor of the Beating the Dow newsletter.

Dow Jones & Co., which manages the index, has aimed over the years to maintain the Dow’s historical continuity by making only infrequent changes in its mix of well-known U.S. blue-chip companies.

Established in 1896, the Dow for decades was largely filled with smokestack stocks that reflected the modern American economy’s manufacturing roots--hence the “industrial” in its name.

Indeed, although Dow Jones editors added Coca-Cola and IBM to the index in 1932, they changed their minds a few years later. Coke was booted out in 1935 for National Steel; IBM was dumped in 1939 for AT&T.;

IBM was added back in 1979, and Coke in 1987. Had they remained in the Dow the entire time the index would be far above 10,000 today.

Still, even in its early days the Dow had a smattering of non-smokestack stocks. When it was expanded to 30 stocks in 1928, the index included retailers Sears and Woolworth.

And since 1979, substitutions in the Dow have favored consumer- and service-oriented American companies over heavy-industry firms.

Drug giants Merck and Johnson & Johnson, banking leader J.P. Morgan and fast-food titan McDonald’s have been added since 1979, booting out such creaking Rust Belt names as nickel miner Inco and Bethlehem Steel.

Yet critics say Dow Jones has been too slow to delete lagging industries in favor of emerging ones.

For example, the Dow has two oil companies (Chevron and Exxon) and two chemical firms (Dupont and Union Carbide) but only one entertainment name (Walt Disney) despite that sector’s growing importance to the economy.

More significant is that the Dow has only two pure technology issues--Hewlett-Packard and IBM. Why no Microsoft or Intel, whose economic importance arguably far exceeds that of other Dow members, such as Goodyear Tire?

Dow supporters say stocks ought to have a long track record to be added to the index.

“Microsoft seems like a household name--and it is--but it hasn’t even been around for 20 years,” said Charles Carlson, contributing editor of the Dow Theory Forecasts newsletter in Hammond, Ind., and co-manager of Strong Dow 30 Value fund.

Critics say the Dow’s biggest shortcoming as the de facto U.S. market symbol is that it doesn’t--and can’t, with only 30 stocks--reflect the state of the broad market.

Nonetheless, since Dec. 31, 1980, the Dow’s 938% price gain is on par with the 865% price gain of the much broader blue-chip Standard & Poor’s 500-stock index.

As such, the Dow has at least since then faithfully reflected the general direction of the biggest American stocks, its supporters say.

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The Dow From 5,000 to 10,000

Here are the 30 stocks in the Dow Jones industrial average ranked by their percentage gains since the index has doubled--rising from the 5,000 mark on Nov. 21, 1995, to 10,006.78 as of Monday. Four of the stocks--Citigroup, Johnson & Johnson, Hewlett-Packard and Wal-Mart--were added to the Dow on March 17, 1997. All stock prices have been adjusted for any stock splits since 1995.

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Price-to- Ticker Close on Monday Pct. earnings Stock symbol Nov. 21, 1995 close change ratio* Wal-Mart WMT 24.50 95.00 287.8% 48 IBM IBM 47.25 177.88 276.5 27 Citigroup C 17.75 64.13 261.3 26 General Electric GE 33.69 112.00 232.4 40 United United UTX 45.38 134.44 196.3 27 American Express AXP 43.25 123.31 185.1 27 Merck MRK 29.69 81.75 175.3 38 Procter & Gamble PG 43.25 101.13 133.8 37 AlliedSignal ALD 22.13 50.75 129.3 2 Johnson & Johnson JNJ 42.69 93.94 120.1 42 McDonald’s MCD 22.50 45.50 102.2 41 General Motors GM 46.30 87.50 89.0 21 AT&T; T 43.80 81.69 86.5 22 Exxon XON 39.88 73.00 83.0 28 Chevron CHV 50.88 89.63 76.2 44 DuPont DD 32.56 57.25 75.8 40 Coca-Cola KO 38.38 64.81 68.9 46 Hewlett-Packard HWP 42.00 69.63 65.8 24 J.P. Morgan JPM 77.00 125.81 63.4 27 Walt Disney DIS 20.30 33.06 62.9 40 Caterpillar CAT 29.69 47.25 59.1 11 Alcoa AA 27.56 41.81 51.7 17 Philip Morris MO 30.05 41.19 37.1 19 International Paper IP 35.50 44.19 24.5 63 Goodyear GT 40.63 50.06 23.2 12 Union Carbide UK 38.88 46.25 19.0 16 Sears S 39.50 46.75 18.4 17 3M MMM 62.06 71.31 14.9 24 Boeing BA 36.69 34.75 -5.3 30 Eastman Kodak EK 69.88 65.63 -6.1 15 Dow average 5,023.55 10,006.78 99.2 26

Dividend Stock yield Wal-Mart 0.00 IBM 0.01 Citigroup 0.01 General Electric 0.01 United United 0.01 American Express 0.70 Merck 0.01 Procter & Gamble 0.01 AlliedSignal 0.05 Johnson & Johnson 0.01 McDonald’s 0.00 General Motors 0.02 AT&T; 0.02 Exxon 0.02 Chevron 0.03 DuPont 0.02 Coca-Cola 0.01 Hewlett-Packard 0.01 J.P. Morgan 0.03 Walt Disney 0.01 Caterpillar 0.03 Alcoa 0.02 Philip Morris 0.04 International Paper 0.02 Goodyear 0.02 Union Carbide 0.02 Sears 2.00 3M 0.03 Boeing 0.02 Eastman Kodak 0.03 Dow average 0.02

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Sources: Bloomberg News, Times research

*Trailing 12-month price-to-earnings ratio from Associated Press