US Markets
Monday, February 26th, 2024 4:27 pm EDT
Key Points
- Amazon officially joins the Dow Jones Industrial Average, replacing Walgreens Boots Alliance, as part of a move to modernize the index and potentially improve its recent underperformance. Amazon’s stock has surged over 80% in the past year, contributing to the strength of the S&P 500 while the Dow has struggled to keep up.
- The Dow, consisting of just 30 components and weighted by individual stock prices rather than total market value, has been criticized by some investors as an outdated representation of the American stock market. As technology has become increasingly dominant, the Dow’s industrial-heavy composition has hindered its ability to gain exposure to fast-growing tech companies, such as Nvidia and Alphabet, which are absent from the index.
- Despite Amazon’s official classification as a consumer discretionary stock, its addition to the Dow acknowledges its status as a tech giant and aims to narrow the gap between the Dow and the S&P 500. However, the Dow still remains underweight in tech compared to the S&P 500, contributing to its recent underperformance during the tech-led rally. The move to include Amazon reflects an effort by S&P Dow Jones Indices to keep the Dow relevant and relatable to investors in an evolving market landscape.
The Dow Jones Industrial Average is undergoing a significant transformation as Amazon officially joins the index, replacing Walgreens Boots Alliance. This change aims to modernize the Dow and potentially improve its recent underperformance compared to the S&P 500. The Dow, with only 30 components, is often seen as a less representative index due to its small size and method of weighting stocks by share price rather than total market value. As technology has become increasingly dominant in the market, the Dow’s industrial-heavy composition has struggled to keep pace with the rapidly growing tech sector. With Amazon’s inclusion, the Dow gains exposure to a major tech player, bridging the gap between itself and the S&P 500, which has surged to new highs driven by tech stocks. Despite being categorized as a consumer discretionary stock, Amazon’s addition to the Dow acknowledges its status as a tech giant. However, the index still remains underweight in tech compared to the S&P 500. This discrepancy has contributed to the Dow’s recent underperformance, with the S&P 500 outpacing it during the tech-led rally of the past year. While the addition of Amazon doesn’t guarantee an immediate rally for the Dow, it signals an effort by S&P Dow Jones Indices, the index’s manager, to keep it relevant and reflective of the evolving market landscape. The move underscores the importance of ensuring that the Dow remains relatable to investors in an increasingly tech-driven economy.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/02/26/amazon-joins-the-dow-giving-the-127-year-old-index-a-needed-upgrade.html
