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Businesses The Almighty Buck Apple Technology

Salesforce To Join Dow Jones, Replacing Exxon, As Tech Rises, Energy Falls (cnbc.com) 45

Posted by BeauHD from the sign-of-the-times dept.
jmcbain writes: The benchmark Dow Jones Industrial Average, a selection of 30 companies that aims to represent U.S. industries at large, is going to have its largest change in seven years. Notably, Salesforce will replace Exxon on the DJIA (and Amgen and Honeywell will replace Pfizer and Raytheon), marking the end of Exxon's 92-year stay on the index. CNBC notes that Exxon's removal is a sign of the times, "as the company -- and energy sector broadly -- falters, a weakness made all the more apparent by strength in technology names."

Analysts observe that "five tech stocks -- Apple, Microsoft, Amazon, Alphabet and Facebook -- are individually larger than the entire U.S. energy sector." But why is this change happening right now? It's apparently due to Apple's upcoming 4-for-1 stock split on August 31, which will significantly reduce the DJIA's exposure to the technology sector. "Basically Apple -- by itself -- took the technology [weighting] within the Dow down from 27.6% to 20.3%. It's a significant decline," Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told CNBC. "By adding Salesforce, you can come back to 23.1% of the Dow being in technology."
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Salesforce To Join Dow Jones, Replacing Exxon, As Tech Rises, Energy Falls More

Salesforce To Join Dow Jones, Replacing Exxon, As Tech Rises, Energy Falls

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  • The Dow is dumb (Score:5, Interesting)

    by Anubis IV ( 1279820 ) on Tuesday August 25, 2020 @03:48PM (#60440213)

    If you're wondering why a company engaging in a 4-for-1 stock split affects an index, it's because the DJIA is weighted by stock price, not by market cap or any other sort of weighting that would actually make sense. I.e. If I'm included in the DJIA and my company's one and only available stock is worth $1 million, my company carries more weight in the index than a company with 1 million stocks each worth $100, which is lunacy.

    Someone doing a 4-for-1 split is like swapping dollar bills for quarters. It's the same value. But the Dow doesn't see it that way.

    • ... which is lunacy.

      Why? The DJ index is only 30 corporations, obviously not representative of any industry or other grouping of capitalists. It's job has always been showcasing the feel-good growth of share price. Using it to measure more than where late-adoptors are parking their money, is the lunacy.

      • ... which is lunacy.

        Why? [...] It's job has always been showcasing the feel-good growth of share price.

        An index's entire purpose is to provide a standard that we can use as a basis for measuring change in the market. As such, if an index tanks or soars when no change in value has occurred, it's failed at its only job and is useless as an index. Share price is one such thing that can rise or fall without any change in actual value occurring, hence my claim that an index based on it is lunacy.

      • One trader in named either Dow or Jones added up the prices of 30 stocks and used that as a rough gauge of the market. Thats how this index was formed. Today we laugh at its primitiveness. But, back then, this was an astounding insight.

    • Re: (Score:3)

      by ceoyoyo ( 59147 )

      I was vaguely surprised to learn how primitive the DJIA was. Then I remembered it's run by business dudes.

      I was once forced to take a business course in undergrad. They were talking about linear programming, in the context of price optimization. Solving the problem started with "draw a very accurate graph on graph paper" and ended with "now take out your ruler and measure...."

      Until that point I thought staring with your mouth open was just a figure of speech.

      • In the intro to economics class the advanced extra point question asked for the equation to be formed. The price points and the demand at those price points were given. They wanted a stupid linear equation joining (x1,y1) to (x2,y2). I gave the answer in y = mx + C form. The answer key from the book was in the A x + B y + C = 0 form.

        I told the prof both answers are the same. He would not accept it. I showed him he can re-arrange y = m x + C and get his form both are same equation. He kept arguing I had

        • Re: (Score:2)

          by ceoyoyo ( 59147 )

          I constantly have clinicians demanding I include units on ratios. They don't seem to be able to grasp that ratios are unitless. Thus the "pu" unit is born.

          Unfortunately I couldn't figure out how to make it "fu."

          • There is Fractional Unit available for use, when units are required for ratios or proportions.

            Some badly designed software API might make units mandatory. We should standardize on FU for such units.

      • It was created in 1896 and remains an unweighted index, that's why it seems "dumb". Nothing to do with "run by business dudes".

        • Re: (Score:2)

          by ceoyoyo ( 59147 )

          People were entirely capable of weighted averages in 1896. Also, the fact that the DJIA is fiddled with on a regular basis means that it could have been updated to be meaningful at any time.

          The reason claimed in the summary for this particular change possibly gives a hint of why it is as it is. And it's a very business dudeish reason.

    • Re:The Dow is dumb (Score:4, Informative)

      by tlhIngan ( 30335 ) <slashdot&worf,net> on Tuesday August 25, 2020 @05:24PM (#60440451)

      If you're wondering why a company engaging in a 4-for-1 stock split affects an index, it's because the DJIA is weighted by stock price, not by market cap or any other sort of weighting that would actually make sense. I.e. If I'm included in the DJIA and my company's one and only available stock is worth $1 million, my company carries more weight in the index than a company with 1 million stocks each worth $100, which is lunacy.

      Someone doing a 4-for-1 split is like swapping dollar bills for quarters. It's the same value. But the Dow doesn't see it that way.

      Incorrect. The DJIA does take stock splits into account. It's a weighted sum of the stock price of all the constituent companies, divided by a factor. The factor takes into account stock splits and the stock's weighting so the price doesn't actually change during a split.

      The goal is to have the DJIA reflect the pre-split price of its constituent companies. So if a DJIA company splits, the factor is adjusted so the new split price doesn't affect the index (i.e., if a stock splits 4-to-1, the DJIA doesn't drop by that fraction - it stays the same.

      • Thanks for the factual clarification, but I'll point out that I never actually said what you think I said (at least in that post, but I did get it wrong elsewhere, so I'm sincere in my thanks for the clarification). I was speaking primarily to what the summary mentioned when it said:

        "Basically Apple -- by itself -- took the technology [weighting] within the Dow down from 27.6% to 20.3%. It's a significant decline," Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told CNBC. "By adding Salesforce, you can come back to 23.1% of the Dow being in technology."

        The Dow is silly because it doesn't treat stock splits as being of the same value before and after the split. That that have a coefficient they need to tweak to keep the index from bouncing around is silly because it shouldn't b

  • The Dow was a pretty important measure of the stock market 50 or 75 years ago, but it's not all that relevant today. It gets cited by market watchers more as a matter of tradition than anything else. The S&P 500 is a far more important index because it is the one that many index funds are tied to (including the ones in a huge portion of 401k plans). It's really the one to watch.

    • As much as people complain about corporate greed, I find it interesting they do not realize how a stock exchange drives that. Lets say I IPO and at the end of the year my company made 30 million in revenue. If I make 30 million next year in revenue, thats not a bad thing. Except in stocks it is. Since my profits did not increase considerably my stock value starts dropping. Suddenly there is constant pressure to make even more than the previous year, even if everyone is comfortable with their workload and in

  • I guess spamming does pay after all (Score:3)

    by Indy1 ( 99447 ) on Tuesday August 25, 2020 @04:23PM (#60440285)

    Spammerforce gets big name recognition now....

    Thats ok, they're still firewalled on my mail server.

    204.14.232.0/21
    13.108.0.0/14
    136.147.0.0/16

  • What on Earth does Honeywell do these days?

    • What on Earth does Honeywell do these days?

      As a Fortune 100 company and one of the largest multinational conglomerates on Earth, the better question might be "what doesn't Honeywell do these days?".

      But to answer your question with info pulled from Wikipedia, their aerospace division "provides avionics, aircraft engines, flight management systems, and service solutions to manufacturers, airlines, airport operations, militaries, and space programs" (including missiles and UAVs), their materials and technologies division is responsible for "process tec

    • Re: (Score:2)

      by tlhIngan ( 30335 )

      What on Earth does Honeywell do these days?

      Everything, it seems. Aerospace (avionics is a big one), HVAC (primarily control - you may be familiar with their thermostats which seem to be in everyone's house), safety equipment (oh hey, pandemic!) and other things.

      Just one big conglomerate that has its hands in many pies

      • Re: (Score:2)

        by PCM2 ( 4486 )

        HVAC (primarily control - you may be familiar with their thermostats which seem to be in everyone's house),

        I live in San Francisco. Our weather is boring all year round and the old buildings don't have HVAC. Hell, a lot of them don't even have insulation.

  • They've got to make it look like the economy didn't fail.

    Change the companies, and you can make the dow keep going up.

    The whole thing has been utterly fake for years.

    • It's an interesting conspiracy theory. But look at the S&P 500, which is always made up of the 500 largest companies ranked by market capitalization, not chosen by a shadowy group of men in a back room somewhere. The S&P 500 and DJIA generally track pretty closely with each other, though not exactly. Adding SalesForce may have a minor effect on the DJIA, but it certainly won't lead to a deceptive view of the stock market as a whole.

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