Why the Dow’s First Stock Average Followed the Railroads
When Charles Dow’s first market average appeared in 1884, it was built around the businesses that moved goods across the country. Nine of its 11 companies were railroads; the other two were transportation-related firms. The lineup was not a miniature version of today’s broad market indexes. It was a snapshot of an economy whose commerce depended heavily on rail lines.
Rail Traffic Made Company Fortunes Visible
A railroad’s share price could reflect more than the company itself. Busy lines meant freight and passenger revenue; expanding trade could mean more cargo to carry. Railroads also competed over routes and rates, so investors watched whether a line could attract traffic and earn money from it. Tracking several railway stocks offered a practical way to follow the fortunes of a major part of American business.
That made the average useful as a market signal, but not a complete picture of the economy. A change in railroad shares said little directly about businesses outside the network. And this early average was distinct from the Dow Jones Industrial Average, introduced later, as industrial companies became more prominent.
A Market Measured Along the Tracks
For an investor in 1884, following the market meant paying attention to the companies that connected farms, factories, ports, and cities. The first Dow lineup captured that dependence: the shape of a market indicator reflected the infrastructure carrying the nation’s trade.
