Last week the Dow Industrials announced changes to the index.  Three companies, Exxon, Pfizer and Raytheon, were removed from the Dow Jones Industrial Average (DJIA) on Monday, August 31st and replaced by Amgen, Salesforce and Honeywell.

The main reason for the change was driven by Apple’s decision to enact a 4-for-1 stock split.  Apple alone accounted for 27.6% of the technology weighting of the Dow. This split impacted the weighting of the technology sector, bringing it down to 20.3% and affecting the benchmark by 7.3% within the index.

The new arrangement will bring the weighting back to 23.1%.  Apple has increased its value by $1 trillion since the market low on March 20th.  The S&P will be impacted as well.  If you hold an index or ETF fund that is directly correlated to the Dow or S&P 500, it will be rebalanced- this does not automatically mean that you have made a profit, so be aware.  Shares of both Amgen and Salesforce rose significantly on the news, of course, as people play the split game, which is a regular game of chicken!

So, the Dow used to be an ‘Industrial’ index.  Now they are trying to compete with the S&P 500 by adding a lot of technology, like Microsoft, Cisco, Intel… and now Salesforce?!  Call it what you want, but it is no longer an Industrial Index!

There has been a wide difference in performance between indexes, with the NASDAQ up over 30% , the S&P 500 closer to 10% and the Dow Jones (former Industrials) only up 1%.   Folks who are watching see that the Russell 1000 Value, which is also a well-accepted index of dividend oriented stocks, is still down around 9% for the year as of this writing.

It is a market of extremes… technology is up big, while dividend and industrial stocks are flat-to-down for the year.  Over time, these style differences get averaged out and in the long term, value/dividend stocks have a slight lead, though most clearly not this year.  That is why the DJIA is no longer ‘Industrials’ only… if so, the performance would have been even weaker.

Thanks to my colleague Gene Witt who compiled some of the above details~

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