Dow Jones Goes High Tech

The venerable Dow Jones Industrial Average, the stock index that most Americans use to take a snapshot of their country’s economy, underwent a significant change on October 26 with the announcement of the addition of four new stocks and the subtraction of four mainstays. New stocks added to the Dow Jones Industrial Average include
• Microsoft, a software company
• Intel, an electronics manufacturer
• SBC Communications, a regional Bell telephone company
• Home Depot, a hardware superstore chain

Gone from the Dow Jones Industrial Average are
• Chevron, an oil company
• Sears Roebuck, a department store chain and catalog company
• Union Carbide, a chemical manufacturer
• Goodyear Tire and Rubber Co., an automotive tire and supply manufacturer

These changes, which went into effect on November 1, remove companies that have been part of the index for years but have not performed well over the past few years compared with other companies. Investors have noted that in recent times the Standard & Poor's (S&P) 500 stock index was a better predictor of the stock market than the Dow Jones Industrial Average, and had begun to use the S&P more heavily in options and futures trading. For example, over the last 18 months, the Dow Jones Industrial Average has risen 49 percent, while Sears' and Goodyear’s stock prices have declined. Union Carbide and Chevron’s stocks have also lagged behind the market. By contrast, SBC's stock rose 65 percent, Intel's stock doubled, and Microsoft's and Home Depot’s stocks tripled. The addition of Intel and Microsoft to the Dow Jones Industrial Average is significant because they're the first NASDAQ stocks to be added to the Dow Jones index. The editors of the Wall Street Journal are responsible for selecting the stocks in the Dow Jones Industrial Average, which the publication first conceived in 1896. The Dow Jones Industrial Average has maintained a continuous presence since the end of World War I. According to Paul Steiger, managing editor of the Wall Street Journal, the changes will make the index “even more representative of the evolving U.S. economy.” Price performance isn't the only selection criterion for determining which stocks the Wall Street Journal maintains on the Dow Jones Industrial Average. John Prestbo, markets editor at the Wall Street Journal said the editors “made a conscious effort to get rid of duplicate companies.” Thus, the oil giant Exxon remains while Chevron is gone, and Wal-Mart stays in while Sears is out. On the high-tech side, IBM was the only technology stock on the index until 1997 when the Wall Street Journal added HP. Technology stocks will now make up about 16 percent of the new Dow Jones Industrial Average; they make up 25 percent of the S&P index.

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