With the addition of Alphabet (GOOGL) and Amazon (AMZN), analysts predicts that Dow (ticker: DOW) and Travelers (TRV) will be the most at-risk Dow members.
Both Alphabet and Amazon had to decrease their share prices by 20 for one to get them into the Dow Industrials, bringing them down from over $2,000 to about $100. On Monday, Alphabet’s stock was divided, and in June, Amazon’s stock was split. On Thursday, Alphabet’s class A shares increased 0.4% to end at $114.34, while Amazon’s jumped 1.5% to $124.63.
The Dow Industrials’ price weighting is straightforward and traditional, reflecting the index’s lengthy history that dates back to 1896, when the index’s present shape was adopted and the index was computed manually.
The index changes reflect the underlying equities’ absolute price movements.
What Happens to the Dow Industrials? When stocks are added or removed, the process is not on a set schedule. Even though the most recent update was in 2020, the two previous ones were in 2018 and 2016. The organization responsible for the index, the S&P Dow Jones index, may make a change this year.
When asked about future additions to the Dow Industrials, a representative from S&P Dow Jones Indexes declined to comment or speculate. If a firm meets the established requirements for “good reputation,” “continuous growth,” and “wide appeal,” its stock may be included in the index. Given the price weighting of the index, the committee also takes into account the stock price.
For the same reason that Travelers and Dow have smaller market caps than the rest of the components in the S&P 500 (approximately $36 billion), they might be dropped from the index.
Due to the Exxon removal, the S&P Dow Jones Indexes came dangerously close to hitting rock bottom. When excluded from the index, shares of the top U.S. energy business more than quadrupled, while those of Salesforce fell by over 30 percent. Pfizer was cut just as its stock was about to soar on the back of the success of its Covid vaccine. This swap in 2018 was made to switch out a losing stock for a winning one. Since then, Walgreen’s stock has dropped by around 37%, while that of its predecessor, General Electric (GE), has fallen by roughly 35%.
Apple successfully replaced AT&T, proving the success of the previous switch (T).
