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The Dow Jones Industrial Average is getting a makeover.
S&P Dow Jones Indices, which manages the 30-stock benchmark, said it would addSalesforce.com Inc., Amgen Inc. and Honeywell International Inc. to the blue-chip index atthe start of trading on Monday.
Those three stocks will replace Exxon Mobil Corp., Pfizer Inc. and RaytheonTechnologies 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 iPhonemaker’s valuation, which topped $2 trillion last week, it would have given theinformation-technology sector a smaller representation in the Dow industrials. Theaddition of those three companies helps to mitigate Apple’s decision, S&P said.
Apple will start trading on a split-adjusted basison Monday as well.
“They also help diversify the index by removing overlap between companies of similar
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https://www.wsj.com/articles/salesforce-amgen-honeywell-to-join-dow-jones-industrial-average-11598305490
MARKETS
Salesforce, Amgen, Honeywell to Join DowJones Industrial AverageCompanies will replace Exxon, Pfizer, Raytheon in index
Salesforce is among three companies set to join the Dow Jones Industrial Average. The company’s New York office in May
2019.
PHOTO: VICTOR J. BLUE/BLOOMBERG NEWS
By
Updated Aug. 24, 2020 7:01 pm ET
Michael Wursthorn
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5 Minutes
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scope and adding new types of businesses that better reflect the American economy,” S&Psaid in a statement announcing the changes.
The Dow is a price-weighted index, meaning higher-priced stocks contribute more pointsto the index’s daily moves. Apple shares currently trade higher than the 29 other stocks inthe Dow, giving them the most sway over the direction of the index. UnitedHealth GroupInc. will take that mantle beginning next week when Apple’s influence wanes and it dropsto the middle of the pack.
Apple’s split alone will reduce the weighting of information technology to 20% fromnearly 28%, according to Howard Silverblatt, a senior index analyst with S&P Dow JonesIndices.
“To some degree, the impact on the Dow of the split is similar to profit taking, since thegains are locked in and then reallocated into the portfolio,” Mr. Silverblatt added in anemail.
The additions, as well as the stock split, won’t disrupt the level of the Dow. That is becauseS&P is also modifying the so-called Dow divisor, which is used to calculate the index’spoint gains or subtractions by multiplying it against the individual price moves of eachstock.
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% sofar in 2020.
Without making any other changes to the index, the performance gap between the Dowand 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 asignificant impact on its daily swings.
Shares of Salesforce, a provider of subscription-based business software, are up 38% thisyear, closing Monday at $208.46, while biotech pioneer Amgen closed at $235.57 afterrising 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 inFebruary 2008. The industrial conglomerate had first joined the benchmark in 1925 asAllied Chemical & Dye.
Share-price performance Tuesday
Source: FactSet
As of Aug. 31, 4 p.m. ET
Amgen
Honeywell International
Salesforce.com
Pfizer
Raytheon Technologies
Exxon Mobil
-4% -2 0 2
The three outgoing stocks all trade below $100. Exxon and Raytheon were deep in the redin 2020, shedding at least 30%. Pfizer, on the other hand, is off less than 1% from where itwas 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 enteredthe 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 stockmarket, 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 includeseditors of The Wall Street Journal, which is published by Dow Jones & Co., a part of NewsCorp.
Write to Michael Wursthorn at [email protected]
Copyright © 2020 Dow Jones & Company, Inc. All Rights Reserved
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