On Monday, Alphabet will replace Verizon in the Dow Jones Industrial Average. In a market-cap-weighted index, this would be unremarkable. Both are large companies. The S&P 500 already holds them both. But the Dow is price-weighted. A stock's influence on the index is proportional to its share price, not its market value. Alphabet trades at roughly $345. Verizon trades at roughly $47. One committee decision just multiplied a single slot's index influence by seven.
The Number That Lost Its Meaning
The Dow was created on May 26, 1896 by Charles Dow with 12 stocks. The divisor was 12. The index was a literal average: add the prices, divide by the count. When the index expanded to 20 stocks in 1916, the divisor adjusted. When it grew to 30 on October 1, 1928, it adjusted again. Each stock split required another adjustment. The divisor preserved continuity, ensuring that no corporate action would move the index by itself. This made sense. The number was doing arithmetic.
Today the divisor is 0.16242563904928. Every dollar change in any Dow stock moves the index 6.157 points. A number that started as a simple count of 12 has been compressed below one by 130 years of accumulated adjustments. The index value is now larger than the sum of its component prices. The word "Average" in Dow Jones Industrial Average has not been arithmetically true for decades.
The 75 Percent Haircut
On August 31, 2020, Apple executed a 4-for-1 stock split. The company's market capitalization did not change. Its earnings did not change. Nothing about the business changed. Apple's Dow weight fell from approximately 11.2 percent to approximately 2.7 percent. The most valuable company on Earth lost three-quarters of its influence on the index because it divided its share price by four.
No other major global index would produce this outcome. The S&P 500, Nasdaq Composite, and FTSE 100 are all market-cap weighted. Of the world's major indices, only the Dow and Japan's Nikkei 225 still use price-weighting. The Nikkei officially calls its method "Dow adjustment." Its divisor is 29.83, still recognizable as a number in the neighborhood of a constituent count. The Dow's has compressed into a fraction that encodes every structural event since Grover Cleveland's second term.
What the Index Measures
Verizon has a market capitalization above $190 billion. It controlled half a percentage point of the Dow. General Electric was the last surviving member of the original 1896 index. It was removed on June 26, 2018. None of the original 12 companies remain. The index has held at exactly 30 components for 98 years, in a U.S. equity market of thousands of publicly traded companies. Its composition is determined by a committee at S&P Dow Jones Indices, a division of S&P Global, the same organization that manages the S&P 500. One index is price-weighted. The other is market-cap weighted. Both are profitable products.
The primary Dow tracking ETF holds approximately $43 billion in assets. The primary S&P 500 tracker holds roughly $780 billion. Eighteen times more capital tracks the market-cap-weighted alternative. The capital markets have voted on which methodology is superior. The narrative market has not.
Why It Survives
The Dow was invented for a newspaper. In 1896, computing a price-weighted average required addition and division. Market-cap weighting required multiplication by shares outstanding, data that was difficult to collect and impossible to verify at press time. Simplicity was not a design limitation. It was a distribution advantage. The Dow was printable. Every alternative was not.
That advantage compounded for 130 years. The Dow became the index that newspapers quoted, then radio broadcasts, then television tickers. By the time market-cap weighting became computationally trivial, the Dow owned the phrase "the market." Honeywell will remain in the index after its aerospace spinoff, continuing under a new name. This is what the committee decides now: which brands stay and which brands go.
On Monday, Alphabet joins Nvidia, Amazon, Apple, and Microsoft in the thirty-stock index. This is the first composition change since November 2024. The divisor will be adjusted again. And the most quoted measure of the American stock market will continue to be the one that a stock split can break.