Amazon Will Now Be Part of the Dow Jones Average
It’s official: Amazon.com has joined the blue chips in DJIA.
Start trading on Monday to see the online retail behemoth supplante Walgreens Boots Alliance in the storied Dow Jones Industrial Average.
The 30-stock benchmark is managed by S&P Dow Jones Indices. According to them, these adjustments are a result of Walmart’s 3-for-1 stock split, which takes effect next week as well.
The blue-chip index uses share price weighting rather than market capitalization, in contrast to the S&P 500 and the Nasdaq Composite. The consumer staples sector and Walmart will both see their index weights reduced as a result of the split.
The 30 stock values are added together and then divided by a formula that takes into consideration movements such as stock splits and index entry to get the Dow. Therefore, regardless of a company’s total market value, a higher share price makes a bigger impact on index fluctuations.
It wasn’t long until Walgreens was no longer included in the index. June 2018 saw its addition, taking the place of General Electric. Since then, the stock has underperformed, losing over 63% of its value and ranking last in the Dow for both 2019 and 2023.
The pharmacy chain is scrambling to recoup lost revenue as demand for COVID-19 testing and immunizations declines. The quarterly dividend of Walgreens was cut last month.
However, among the stock market’s most powerful performers, Amazon stands out. The firm attributes its extended comeback from a post-pandemic dip to robust online shopping over the holidays, and it claims that interest in artificial intelligence is fueling good sales in its cloud-computing subsidiary.
A market valuation of over $1.7 trillion already exists for Amazon, thanks to nearly doubling of shares since the start of 2023.
There will be no more dividend-paying Dow stocks after Amazon, Boeing, and Salesforce. It will be ranked 17th by weighting and influence in the index, while Walmart falls from 17th to 26th. Top billing will be retained by UnitedHealth Group.
In August of 2020, the Dow saw its most recent volatility. Honeywell International, Salesforce, and Amgen were added to the index, displacing Exxon Mobil, Pfizer, and Raytheon Technologies, respectively. A stock split at Apple was the catalyst for that adjustment.
The composition of the index is determined by a group that includes representatives from both S&P Dow Jones Indices and The Wall Street Journal. In accordance with index methodology, the committee seeks out companies that have a “excellent” reputation, demonstrate consistent growth, and attract a significant level of investor interest.
The index is updated as necessary. To be eligible for membership, a company must already be in the S&P 500. Companies in the utilities and transportation industries are not included in the Dow industrials, but they are represented in their own Dow indexes.
Dow Jones Market Data indicates that UnitedHealth now accounts for around 9% of the index. At about 7% behind are Microsoft and Goldman Sachs. The tiniest participant, with about 0.4%, is Walgreens. The bottom three are Intel (at0.8%), Verizon Communications (at0.7%), and others.
In comparison to the Nasdaq and S&P 500, the Dow has been falling behind in recent times. Over the last five years, the blue-chip index has increased by almost 50%, the S&P 500 by about 75%, and the tech-heavy Nasdaq by more than 100%.
When compared to the S&P 500, which is more highly weighted toward technology and communication services, the Dow is more heavily weighted toward healthcare and financials.
Charles Dow, who was instrumental in establishing Dow Jones & Co. as the publisher of The Wall Street Journal and the journal’s first editor, devised the Dow average to elucidate stock-market fluctuations for his audience.
The Journal began publishing an average of twelve stocks per day in 1896. In 1884, a prior magazine published an earlier stock average, with railroads making up the majority of the companies. Twenty names were included to the industrial average in 1916, and by 1928, that number had grown to thirty.
