Dow Jones Industrial Average Overhauls Its Iconic Index for the Information Age

Strategic Insights -

The Dow Jones Industrial Average, a century-old benchmark of the US stock market, has been revamped to reflect the country's shift towards the information age. The iconic index has shed five industrial giants, including Sears Roebuck & Co. and Chevron Corp., and welcomed four high-tech pioneers, including Microsoft Corp. and Intel Corp. The changes aim to make the Dow Jones Industrial Average a more representative measure of the evolving US economy.

Key Takeaways:

  • The Dow Jones Industrial Average has updated its index for the first time in four years, replacing five industrial companies with four high-tech leaders.
  • The added stocks, Microsoft, Intel, Home Depot, and SBC Communications, have a combined market value of around $236 billion.
  • The removed stocks, Sears, Chevron, Goodyear, and Union Carbide, have a combined market value of approximately $21 billion.
  • Microsoft and Intel are the first Nasdaq stocks to be included in the Dow Jones Industrial Average, reflecting their importance in the new economy.
  • The changes bring the weighting of technology stocks in the Dow to around 20% from 12% previously.
  • The Dow Jones Industrial Average may increase more rapidly and reflect the volatility of the technology stocks, which have outpaced the rest of the US economy in the past decade.

Statistics:

  • The market value of the four stocks being added to the Dow Jones Industrial Average is $236 billion, while the four ousted stocks have a combined market value of $21 billion.
  • Microsoft Corp. has a 10-year return of 7,394.8%, Intel Corp. has a 10-year return of 3,409.2%, Home Depot Inc. has a 10-year return of 2,509.5%, and SBC Communications Inc. has a 10-year return of 358.3%.
  • The Standard & Poor's 500 index, which includes more technology stocks, has grown faster than the Dow Jones Industrial Average in the 1990s.
  • Approximately $700 billion is invested in mutual funds that replicate the S&P's performance, compared to $165 million invested in funds that follow the Dow.

Sources:

  • Dow Jones & Co., publisher of the Dow Jones Industrial Average and the Wall Street Journal.
  • Paul Steiger, managing editor of the Wall Street Journal.
  • Frank Zarb, chairman of the National Association of Securities Dealers, the parent of Nasdaq.
  • Reuters News.
  • Bloomberg News.