Of all the major changes to the Dow on Monday, this may be the most important

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The Dow Jones Industrial Average will see a handful of significant changes take effect Monday morning, but it may be the change in how it’s calculated that will be the most significant for Wall Street in the near term.
As of Monday’s opening, the so-called divisor – the number used to determine the influence of any of the 30 components that make up the DJIA-weighted Dow industrialists,
+ 0,56%
– will be modified for the first time since April 2019.

The move is at least in part precipitated by Apple Inc.’s AAPL,
-0,16%
fifth share split in 40 years as a listed company. Apple’s 4-for-1 stock split sparked a cascade of changes from the owners of the blue-chip benchmark, S&P Dow Jones Indices, which added Salesforce.com Inc. CRM,
-1,88%,
Amgen Inc. AMGN,
+ 0,12%
et Honeywell International Inc. HON,
+ 1,44%
on the index, replacing the iconic Exxon Mobil Corp. XOM,
+ 2,39%,
Pfizer Inc. PFE,
+ 0,13%
et Raytheon Technologies Corp. RTX,
+ 2,20% Lis: 3 things to know about Apple’s stock split

Since the value of the Dow Jones is determined by calculating the sum of the prices of its components using a divisor that also takes into account when a company divides its shares, the S&P Dow Jones Indices felt compelled to ” adjust the composition of the benchmark. Stock splits can tip the balance of influence for any first-rate component.
The new divider will probably be 0,152 starting around 0.147, Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told MarketWatch. In other words, a $ 1 price move in any component of Dow translates to a swing of 6.579 points, down from around 6.8 points.
Apple’s equity division may also have given Dow managers an opportunity to readjust the stock gauge to 124 to better reflect the rapid rise of technology in the wider market in the face of the COVID-19 pandemic. . Apple’s division is reducing the weighting of the former largest member of Dow to 3% from around 12% and the overall technology representation in the index to around 20% from 27%. (The addition of Salesforce to the Dow Jones will bring technology’s share of the index to around 23%).
Information Technology is by far the largest sector in terms of weighting in the S&P 500 SPX Index,
+ 0,67%,
at 27.5%, as of July 31, for example.

DJIA components as of 08/31/20 Price ranking in $
1 Groupe UnitedHealth 314,37
2 Home Depot Inc. 286,29
3 Salesforce.com 271,10
4 Amgen Inc. 253,12
5 Microsoft Inc. 228,91
6 Visa Inc. 215,71
7 McDonald’s Corp. 214,91
8 Goldman Sachs 207,71
9 Boeing Co. 175,80
dix Honeywell International 168,38
11 3M Co. 165,66
12 Johnson & Johnson 153,64
13 Caterpillar Inc. 143,63
14 Walmart Inc. 140,30
15 Procter & Gamble Co. 138,77
16 Walt Disney Co. 135,54
17 IBM 125,07
18 Apple Inc. 124.80 (adjusted by division)
19 Travelers Cos. 115,89
20 Nike Inc. 112,29
21 JPMorgan Chase & Co. 102,77
22 American Express 102,54
23 Merck & Co. 85,65
24 Chevron Corp. 85,63
25 Communications Verizon 59,26
26 Intel Corp. 50,43
27 Coca-Cola Co. 49,83
28 Dow Inc. 46,05
29 Cisco Systems 42,20
30 Walgreens Boots Alliance Inc. 38,76
Source: FactSet New entrants in bold

The S&P Dow Indices explained that the general idea of ​​changing the divisor was important in “the index’s ability to provide a continuous measure of market valuation in the face of changes in the stocks included in the index.”
Apple will be ranked 18th in price on the Dow on a division-adjusted basis, while new entrants to the Dow will all be in the top 10, led by Salesforce.com at No.3.
All the interest in movements within Dow industrialists may surprise some on Wall Street. More than $ 11 trillion is pegged to the S&P 500, while about $ 32 billion was pegged to the Dow at the end of 2019, according to the S&P Dow Jones indices.
That said, the Dow Jones Index is by far the best known and easiest to understand index in the world.

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