Dow 30′s big fat swap
Some new names will show up in the top 30 companies of the Dow Jones Industrial Average to replace some of the lower priced stocks that are currently listed. Visa, Nike and Goldman Sachs will move up as HP, Alcoa, and Bank of America make their exit.
“We are removing three lowest-priced stocks and replacing them with stocks with higher prices,” said David Blitzer, committee manager for the index committee. The presence of lower priced stock essentially brings down the average of the Dow 30, which can paint a false negative of the marketplace. Alcoa stocks are currently selling at $8, which is the lowest price in the index and therefore significantly affects the Dow 30 average value. The committee also says that adding in these three companies to the Dow 30 will provide more diversity and better industry representation into the ranking.
Big news for investors
This is big news for investors as Visa, Goldman Sachs and Nike will take the number 2, 3 and 18 spots, respectively. The companies will represent various industries that comprise the index, with Nike representing the consumer discretionary category, Goldman representing investment banking and Visa representing the technology sector in the form of a payment network. The committee hopes that by adding in companies that are more representative of the industries that are prevalent in the marketplace today and that are currently selling stocks at higher prices, the Dow average will be more indicative of market performance.
It is apparent that a lot of thought and consideration went into making this decision as additions and deletions from the Dow do not happen often. Between 1999 and 2009, there have been only eight additions and eight deletions during that 10 year time period. Blitzer says this will be the first time that there has been a three-for-three switch since 2004.