Amazon.com Inc. is a member of the Dow Jones Industrial Average, one of Wall Street’s oldest and most prestigious stock indexes.
The e-commerce pioneer will officially become a member of the Dow Jones Industrial Company, replacing drugstore operator Walgreens Boots Alliance, before the start of trading on Monday.
S&P Dow Jones Indices opens door to index rebalancing with Amazon’s inclusion in the Dow and Walgreens exit, given a 3-for-1 stock split by another Dow company, Walmart. Ta.
Seattle-based Amazon will share Dow membership with Apple, Boeing, JPMorgan Chase & Co., Coca-Cola and others.
This is a look at 30 stocks from well-established, well-known companies. These stocks are sometimes known as “blue chips” and are considered to be on the more stable and safer side of Wall Street.
What’s in Dow?
Despite the name, it’s not just industrial companies like Caterpillar or Honeywell.
Since the Dow began in May 1896, the roster has changed many times as the U.S. economy has changed. For example, Standard Rope & Twine has exited and recently large technology companies have entered the market.
Apple, Intel, and Microsoft are some of the emerging market companies currently included in the Dow Jones Industrial Average. Before Amazon, recent additions to the Dow Jones Industrial Average were Salesforce.com, Amgen, and Honeywell International in August 2020. These were replaced by Exxon Mobil, Pfizer, and Raytheon Technologies (now known as RTX).
The financial industry also has healthy representatives such as American Express, Goldman Sachs, JPMorgan Chase, and Travellers. So are Amgen, Johnson & Johnson, Merck and UnitedHealth Group Healthcare.
The change is a response to a planned 3-for-1 stock split at Walmart, another Dow company.
If Walmart implements a stock split on Monday, the retailer’s stock price will fall. The Dow Jones Industrial Average is a price-weighted index, giving more weight to stocks that trade at higher prices, so the Wal-Mart stock split would reduce the stock’s weight in the index.
With this in mind, S&P Dow Jones Indices is rebalancing the index by removing Walgreens, which currently has the lowest stock price among the Dow stocks, and adding Amazon.
S&P Dow Jones Indices is also adding Amazon to increase the Dow’s consumer retail exposure to reflect the “evolving nature of the American economy.”
Amazon’s entry into the Dow, Walgreens’ exit, and Walmart’s stock split will have a ripple effect on the weighting of Dow stocks. Once the transition is complete, Amazon’s weight in the Dow Jones Industrial Average will rank 17th among the 30 stocks in the index. Walmart’s weight drops from 17 to 26. UnitedHealth Group remains the most heavily weighted stock in the index.
No, the 30-company Dow Jones Industrial Average represents only a small portion of the economy. Professional investors tend to focus on broader measures of the market, such as the S&P 500 index. The S&P 500 index has nearly 17 times as many companies.
S&P Dow Jones Indices estimates that more than $11.2 trillion of investments were benchmarked to the S&P 500 at the end of 2019. That’s 350 times the $32 billion that is the benchmark for the Dow Jones Industrial Average.
An investor’s 401(k) account is much more likely to include an S&P 500 index fund than a fund tied to the Dow.
While their performances have historically tended to be relatively close, they have diverged significantly in recent years.
In 2023, the Dow rose 13.7% and the S&P 500 rose 24.2%. 2022 was a year of low stock prices, with the Dow Jones Industrial Average dropping 8.8% and the S&P 500 index dropping 19.4%.
So far this year, the S&P 500 is up about 6.7% and the Dow is up 3.8%.
A big reason for the difference in performance between the indexes is that the S&P 500 puts more emphasis on big tech stocks, which are among the market’s biggest winners. Expectations that the Federal Reserve will soon start cutting rates after raising them, as well as enthusiasm over artificial intelligence technology, have pushed seven stocks in particular to dizzyingly high levels. There is.
Alphabet, Amazon, Apple, Microsoft, Metaplatform, Nvidia, and Tesla alone have accounted for much of the S&P 500’s rise in recent years, and only two of them, Apple and Microsoft, are in the Dow Jones Industrial Average.
No, the Dow and S&P 500 also take different approaches to measuring how the index should move.
As mentioned earlier, the Dow gives more weight to stocks that have more dollars added to or subtracted from their stock prices. That means stocks with high price tags, such as UnitedHealth Group and its $500 stock, are often the ones that drive down stock prices the most. A 1% move in the stock (about $5) packs a much bigger punch than a 1% move in Verizon Communications (about 41 cents).
On the other hand, the S&P 500 increases the weight of stocks according to its overall size. This means that even though Microsoft’s $410 stock price is lower than stocks like United Health, a 1% price move in Microsoft, the most valuable company, still packs a bigger punch than a 1% price move in any other stock. It means that there is.
Being so old, it has a longer track record than other indicators on the market.
For a while, triple-digit gains in the Dow were also an easy shortcut to showing that the stock market was doing great. But now it means much less. A 100 point change in the Dow means a change of just under 0.3%.
