The Dow index got a makeover. What does it mean?

The Dow index had its biggest reshuffle in years. With Salesforce in and Exxon out, what does this all mean?


August 27, 2020

The Dow index — which is made up of 30 blue chip US stocks — is getting a makeover as of Monday:

  • In: Salesforce, Amgen, Honeywell
  • Out: Exxon, Pfizer, Raytheon

As a price-weighted index, the Dow is affected by the size of its constituents’ stock price — and Apple’s recent 4-for-1 stock split reduced the index’s exposure to tech.

The addition of Salesforce boosts the Dow’s tech bonafides

While giving the index a timely opportunity to boot Exxon.

In a changing of the energy guard, the oil giant has shed >$100B in the past year while electricity superfan No. 1 Tesla has gained >$300B.

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The 124-year-old index is not an exact mirror for corporate America

While the Dow is the most cited market measure in the world, the S&P 500 — which includes, umm, 500 US companies — is the world’s most tracked index (as measured by assets under management).

According to the index’s parent firm (S&P Global), “changes to the Dow are intentionally infrequent, with the goal of providing continuity over time.”

There have only been ~60 changes over the index’s existence, or about 2 a year.

Additions and subtractions have signified turning points

Here are some notable changes over the years:

  • June 1979: Chrysler and Esmark replaced by IBM and Merck
  • March 1987: Inco and Owens-Illinois replaced by Boeing and Coca-Cola
  • September 2013: Alcoa, Bank of America, and HP replaced by Goldman Sachs, Nike, and Visa
  • March 2015: AT&T replaced by Apple (probably a good call)
  • June 2018: GE (which lost nearly $500B in market cap from its 2000 highs) replaced by Walgreens Boot Alliance

As with everyone on r/WallStreetBets, we’re patiently waiting for Tesla’s Dow inclusion.

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