Apple Replaces AT&T in DJIA
Apple replaced AT&T today in the Dow Jones Industrial Average (DJIA) signifying a change in the economy.
Here is an updated list of the 30 DJIA components by sector and in order by dominance in the index.
Technology: IBM, Apple, Visa, Microsoft, Intel, Cisco
Telecom: Verizon
Industrials: 3M, Boeing, United Technologies, Caterpillar, GE
Basic Materials: DuPont
Financials: Goldman Sachs, Travelers, American Express, JP Morgan Chase
Consumer goods: McDonald’s, Nike, Procter & Gamble, Coca-Cola
Consumer services: Home Depot, Walt Disney, Wal-Mart
Health Care: UnitedHealth, Johnson & Johnson, Merck, Pfizer
Oil & Gas: Exxon Mobil, Chevron
The DJIA uses stock price as its base rather than market cap. Their stock price method gives each point change the same weight. For instance, a one point change in Goldman Sachs, the highest priced stock in the DJIA, counts the same in the index as a one point change in GE, the lowest priced stock. However a one point change in Goldman Sachs is about 0.52% of its value while a one point change in GE is about 4% of that company’s value. Stated another way, if Goldman and GE’s stocks each went up 1% on the same day, Goldman’s change would account in the DJIA for about 7 times GE’s change. Goldman would go up 1.9 points while GE .25 points. Note that 1 point of a stock’s change is about 7 DJIA points. So, Goldman would affect the DJIA by 13 points and GE by 1.75 points. The “7 DJIA” points are determined by a divisor which is published daily in The Wall Street Journal. The divisor changes every time there is a change in the components, a stock dividend, split or spinoff.
In contrast the S&P 500 index is based on market cap. Apple, which has a $740 billion market cap, will have a 1% change and will affect the S&P index 9 times greater than a 1% change in American Express, which has an $82 billion market cap.
At the end of the day, the indexes measure change and both seem to work in tandem over reasonable periods of time.
