It’s 124 years old, and ready for its next makeover!
The Dow Jones Industrial Average is set to experience its biggest reshuffling in seven years before US markets open on Monday, August 31. Exxon Mobil, Pfizer, and Raytheon Technologies will be kicked out of the 30-member index, while Salesforce.com, Honeywell, and Amgen will instead be joining the elite club. The last time the Dow saw three companies being added to this illustrious list was back in 2013.
This decision by S&P Dow Jones indices, which manages the Dow index, is a response to Apple’s decision to perform a 4-for-1 stock split (one existing Apple share will be split into four). Apple’s move would then lessen its weightage on the Dow Jones index, hence creating more room for the likes of Salesforce to beef up the tech sector representation on the index. After all, the tech counters have been the driving force behind the surge in equity benchmarks since the pandemic.
What this move potentially means for the index is that the Dow could prevent itself from falling further behind compared to other equity benchmarks. The DJI remains over four percent lower from its pre-pandemic high, even as the S&P 500 and Nasdaq have since posted new record highs. Such a move could offer some relief for the US$31.5 billion in assets that are linked to the Dow, with almost 90 percent of that tally being passive-funds, having been penalized so far this year because the Dow Jones index didn’t feature enough of the tech sector.
The move could also mean heightened volatility for the incoming and outgoing constituents over the coming days, as fund managers readjust their asset allocations to reflect this new 30-member list. Following the news, Salesforce.com, Amgen, and Honeywell were up by three to four percent in extended trading, while Exxon, Pfizer, and Raytheon are down about two percent.
Perhaps as a sign of the times, with tech usurping energy companies as the driving force of the world, Exxon’s departure is especially telling. Exxon Mobil has been the longest-serving member on the Dow Jones Industrial Average, with the curtains being drawn on its time as a component member which lasted nearly 100 years. Back in 2011, Exxon was deemed the world’s biggest company. Just a decade later, with its shares having fallen almost 60 percent since its record high, it is now just a few days away from bidding farewell to one of the most renowned blue-chip benchmarks in the world.
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