Next Monday, e-commerce and cloud computing giant Amazon will become a member of the world's most famous stock market index: the Dow Jones Industrial Average. It officially joins a stock exchange elite to which it already belongs due to its market value and revaluation. Uber, in turn, will replace airline JetBlue in the Dow Jones Transportation Stocks, the oldest index in the US.
The industry has not been what it was for a long time, and among the 30 components of the index, technology companies (Apple, Microsoft, Cisco, IBM, Intel, Salesforce and Amazon itself), financial and trading companies predominate, although there are also industrial behemoths such as Boeing, 3M, Honeywell, Dow and Caterpillar.
The industrialists' Dow Jones has brought together companies from different sectors to try to make its composition more reflective of the U.S. economy. Amazon will replace pharmacy and convenience store chain Walgreens in the index. “This change reflects the evolving nature of the U.S. economy and will increase exposure to consumer retail and other business sectors,” S&P Dow Jones, which manages the index, said in a statement.
The change comes as Walmart, a subsidiary of Walmart, decided to split each of its stocks into three, which will reduce the retail giant's weight in the index. As a stock market indicator, the Dow Jones has some special features as it is an average of prices and not an index weighted by market capitalization. This implies, for example, that Home Depot has more weight in the index than Apple because its stocks are individually more valuable. By executing the split, Walmart's weighting is suddenly reduced to a third, even though the company remains the same.
Because of this calculation method, professional managers tend to prefer indices such as the Nasdaq 100 or the S&P 500, which are broader and weighted by capitalization. In these indices, the star stocks (the Magnificent Seven: Apple, Microsoft, Alphabet, Nvidia, Amazon, Meta and Tesla) are gaining more and more weight and their development determines that of the index as a whole. The Dow Jones has lagged behind in the revaluation as the strongest stocks have less weight.
The Dow Jones, on the other hand, is an index steeped in history and the most popular reference. First calculated as such on May 26, 1896, it is the second oldest stock index in the United States, after its brother, the Dow Jones Transportation, which primarily included securities from the railroad sector. It was created by Charles Dow, co-founder of the Wall Street Journal and Dow Jones & Company, and is named after him and his partner, statistician Edward Jones.
None of the 12 original members of the index remain. The company that lasted the longest was General Electric, which was excluded in 2018 and replaced by Walgreens, which did not last long in the selected group. Currently, the oldest stock in the index is Procter & Gamble, which was added to the index in May 1932.
Founded in 1994 as a digital bookstore, Amazon now combines technology, distribution, computing, advertising and other businesses. After a very strong holiday quarter, Amazon closed 2023 with revenue of $574,785 million, up 12% year-on-year. Therefore, it is a giant that moves more than half a billion dollars a year and that reflects the composition of the US economy like few companies. The index entry marks another milestone in the rapid expansion of the Seattle-based retailer, which is the second-largest private employer in the United States after Walmart.
Amazon has a market value of $1.7 trillion, but its weight in the index will be half that of Caterpillar, which has a market cap of $156 billion, as the e-commerce giant's shares trade around $167 -Dollars and that of the industrial company fluctuate around 167 US dollars 313.
At the same time, the index manager decided to include Uber Technologies in the Dow Jones Transportation and replace the airline JetBlue there. “This change will help the index gain greater traction in the ride-hailing industry.” The change is due to JetBlue's low weighting in the index, less than half a percentage point due to its low share price, says S&P Dow Jones.
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