The widely followed Dow Jones Industrial Average is changing out 10% of its components, but should you care
The widely followed Dow Jones Industrial Average is changing out 10% of its components, but should you care? The DJIA is dropping Alcoa (AA), Bank of America (BAC), and Hewlett-Packard (HPQ) for Visa (V), Goldman Sachs (GS), and Nike (NKE). The new additions will represent roughly 17% of the price-weighted Dow Index (as opposed to 2% for the old components). The problem is, the Dow simply isn't a very accurate depiction of the market (because it's price-weighted instead of weighted by market cap). What the Dow has going for it is popularity, particularly among the retail crowd. Despite really only being a measure of mega-cap stocks, many investors still want to know what the Dow is doing on a daily basis. One point to consider, the upcoming changes could impact the involved stocks individually because of their addition/subtraction from index tracking funds.
I'm an investments analyst for a US-based independent investment research firm. My focus is on economics, options, and all types of stocks, but especially tech, Internet, and renewable energy companies. I have experience as a options market...
No areas of expertise