Last September, the folks who manage the Dow Jones Industrial average decided it was time to add some new blood to the venerable blue-chip index. So in came Goldman Sachs (GS), Visa (V) and Nike (NKE), and out went Bank of America (BAC), Alcoa (AA) and Hewlett-Packard (HPQ).
Bloomberg News Since the Dow is a price weighted index, the inclusion of Visa, which trades at more than $200 a share, and Goldman Sachs, which trades near $175, at the expense of Alcoa and Bank of America, which trade under $20, changing the stocks that would have the most influence on the index. Before the changes, the three highest priced stocks were International Business Machines (IBM), Boeing (BA) and 3M (MMM). Now they’re Visa, International Business Machines and Goldman Sachs.
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Think it doesn’t matter? Since the changes were made just over four months ago, there have been 12 days when the Dow and the S&P 500 moved in opposite directions; there had been 19 in the previous 12 months. The 120-correlation between the two indexes, a measure of their tendency to trade in the same direction, has dropped from 96.3% to 93.8%, the lowest since 2006.The Dow has gained 8.3% since the changes were made to the S&P 500′s 9.2% rise.
The impact of the changes between can be seen once again today, where the S&P 500 is up 0.1% to 1,839.72, while the Dow Jones Industrial Average has dropped 78.92 points, or 0.5%, to 16,379, thanks to a big drop in…Goldman Sachs, which has dropped 2.3% to $172.25.
Alcoa, by the way, is up 7.7% to $12.23 today, thanks to a JPMorgan upgrade.
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