By Michael Wursthorn
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 25, 2020).
The Dow Jones Industrial Average is getting a makeover.
S&P Dow Jones Indices, which manages the 30-stock benchmark,
said it would add Salesforce.com Inc., Amgen Inc. and Honeywell
International Inc. to the blue-chip index at the start of trading
Those three stocks will replace Exxon Mobil Corp., Pfizer Inc.
and Raytheon Technologies Corp., respectively.
S&P Dow Jones Indices said the changes were prompted by
Apple Inc.'s planned four-to-one stock split announced last month.
Although Apple's stock split won't alter the iPhone maker's
valuation, which topped $2 trillion last week, it would have given
the information-technology sector a smaller representation in the
Dow industrials. The addition of those three companies helps to
mitigate Apple's decision, S&P said.
Apple will start trading on a split-adjusted basis on Monday as
"They also help diversify the index by removing overlap between
companies of similar scope and adding new types of businesses that
better reflect the American economy," S&P said in a statement
announcing the changes.
The Dow is a price-weighted index, meaning higher-priced stocks
contribute more points to the index's daily moves. Apple shares
currently trade higher than the 29 other stocks in the Dow, giving
them the most sway over the direction of the index. UnitedHealth
Group Inc. will take that mantle beginning next week when Apple's
influence wanes and it drops to the middle of the pack.
Apple's split alone will reduce the weighting of information
technology to 20% from nearly 28%, according to Howard Silverblatt,
a senior index analyst with S&P Dow Jones Indices.
"To some degree, the impact on the Dow of the split is similar
to profit taking, since the gains are locked in and then
reallocated into the portfolio," Mr. Silverblatt added in an
The additions, as well as the stock split, won't disrupt the
level of the Dow. That is because S&P is also modifying the
so-called Dow divisor, which is used to calculate the index's point
gains or subtractions by multiplying it against the individual
price moves of each stock.
The Dow remains down 0.8% for the year and 4.2% below its
precoronavirus-crisis high. The S&P 500, in comparison, hit its
first record in six months last week and is up 6.2% so far in
Without making any other changes to the index, the performance
gap between the Dow and the S&P 500 would have likely widened
even further. Just five tech companies, including Apple, make up
roughly one-quarter of the market-cap weighted S&P 500, giving
them considerable influence over its direction.
The three newcomers to the Dow have hefty stock prices, meaning
they will have a significant impact on its daily swings.
Shares of Salesforce, a provider of subscription-based business
software, are up 38% this year, closing Monday at $208.46, while
biotech pioneer Amgen closed at $235.57 after rising 18% in 2020.
Honeywell, whose shares trade for $159.37 apiece, is up less than
2% this year.
The move is a homecoming of sorts for Honeywell, which was
removed from the index in February 2008. The industrial
conglomerate had first joined the benchmark in 1925 as Allied
Chemical & Dye.
The three outgoing stocks all trade below $100. Exxon and
Raytheon were deep in the red in 2020, shedding at least 30%.
Pfizer, on the other hand, is off less than 1% from where it was at
the end of December.
Exxon, which joined the index in 1928 as Standard Oil of New
Jersey, had been the longest-tenured member of the Dow. Pfizer was
added to the Dow in 2004. And Raytheon entered the index through
its merger with United Technologies Corp. earlier this year.
Although the Dow is usually investors' go-to proxy for
describing moves in the stock market, changes to the index usually
don't lead to an immediate shift in investor behavior. Just $31.5
billion in assets were linked to the Dow industrials at the end of
2019, versus $11.2 trillion that followed the S&P 500.
Component stocks of the Dow are selected by the index committee,
a group that includes editors of The Wall Street Journal, which is
published by Dow Jones & Co., a part of News Corp.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
August 25, 2020 02:47 ET (06:47 GMT)
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