How "Dow Unchanged" Became a Once-in-a-Decade Event

Earnings helped send the Dow Jones Industrials  down by a dramatic 107 points by 12:30 p.m. EDT Friday. But yesterday, the Dow finished exactly unchanged for the first time in 12 years. As a point of trivia, it's interesting to see how rare unchanged closes for the blue-chip index have become, but one major change in stock investing has contributed to making unchanged closes much less common than they once were.

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Staying flat
Having the Dow Jones Industrials finish unchanged on any given day has always been uncommon, but it was less rare prior to 2001. According to data from Samuel H. Williamson and MeasuringWorth, the Dow finished unchanged on 10 separate occasions during the 1990s, with one pair coming within just a few weeks of each other. The average finished unchanged on four separate occasions in 1979, and when the level of the Dow was much smaller, unchanged readings were even more frequent.

Unchanged Dow closes became so rare when stock prices converted to decimalization. In 2001, the New York Stock Exchange adopted decimal pricing for all of its listed stocks, allowing investors to trade shares in increments as small as a penny. Prior to that, the NYSE had used fractional pricing, with stocks having spent much of their history trading in eighths of a dollar before sixteenths-based pricing was finally allowed in 1997.

Obviously, having the net changes for 30 different stocks add up to zero always takes an unusual confluence of events. But when share prices had to move in eighths, it was a lot easier for the Dow 30 to line up in just the right order to produce an unchanged day for the Dow Jones Industrials. Moreover, with the current Dow divisor, a net total change of $0.125 would amount to a move of nearly a full point for the index. Now, on the other hand, it's arguably 12 1/2 times harder to end up exactly unchanged, and even a single penny's difference is enough to make the Dow move 0.06 to 0.07 points on a given day.

The other factor making unchanged closes so unusual is that the Dow has risen to such high nominal levels, making hundredths of a point much less significant. Moreover, for the three top-priced stocks in the Dow, a penny change amounts to less than a 0.01% move for their shares -- a level of precision far greater than was available during the 20th century.

Yesterday's unchanged close for the Dow was interesting for historians and trivia buffs, but don't expect to see it happen again for a long time. With decimalization, it takes a rare set of circumstances to leave the Dow completely flat for a given day.

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