The committee that manages the Dow Jones Industrial Average is set to make the most significant changes to the composition of the venerable stock index in seven years: It’s going to swap out three of the 30 components of the index for three new entrants, effective Monday August 31.
That may be bad news for software company Salesforce.com Inc. CRM, +3.64%, Amgen Inc AMGN, +5.37%. and Honeywell International Inc. HON, +3.23%, and relatively better news for the companies that are being replaced by that trio: Exxon Mobil Corp. XOM, -3.17%, Pfizer Inc. PFE, -1.10% and Raytheon Technologies Corp. RTX, -1.50%.
Goldman’s shares rose 9.2%, Visa gained 7.6% and Nike jumped 16.35%, in the following 12-months after their inclusion. However, B. of. A’s shares soared 18%, HP’s shares climbed 72% and Alcoa jumped 91, the year after their removal from the Dow, The Dow is a price-weighted measure, meaning the higher the stock price, the larger the sway for a particular component, and vice versa. That is different from indexes such as the S&P 500 SPX, +0.36%, which are weighted by components’ market capitalization. Therefore, the shrinking influence of Apple after its stock split means that the Dow needed more technology representation in its benchmark.