Salient to Investors:
Goldman Sachs, Visa, and Nike will replace Bank of America, Hewlett-Packard, and Alcoa in the Dow Jones Industrial Average – the biggest reshuffling since April 2004 – boosting the influence of banking and computer companies.
Dow proportions are determined by stock price and not market value, so Visa and Goldman Sachs, which both trade above $160, will have about 7 times the weighting as the constituents they replace.
Dan Greenhaus at BTIG said the Dow is going to look and act very differently, with Visa becoming the second-most important stock in the index and Goldman Sachs the third-most important.
The Dow’s price-weighting system has been a barrier to inclusion of some of America’s most-heavily traded tech stocks – Apple and Google both trade above $500 and are excluded.
Bespoke Investment said the addition of higher-priced stocks reduces the weighting for other members – IBM, 9.4 percent of the Dow average, will see its weighting drop by 1.5 percent.
David Blitzer at S&P Dow Jones Indices Apple and Google stock prices are so high that putting Google in would completely distort the index.
Richard Moroney at Dow Theory Forecasts said the change gives you more stocks that can actually have an impact on what’s going on with the Dow.
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