Bank of America, Hewlett-Packard, Alcoa make expected drop on DOW

Bank of America, Hewlett-Packard, Alcoa make expected drop on DOW

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WASHINGTON, September 10, 2013 – In what some consider a long overdue change in the composition of the venerable Dow Jones Industrial Average (DJI), S&P Dow Jones Indices stated Tuesday that it would drop its three current lowest-priced stocks—Bank of America (BAC), Hewlett-Packard (HPQ) and Alcoa (AA)—from its current list of thirty large-cap stocks. Replacing them will be credit card giant Visa Inc. (V), investment banking kingpin Goldman Sachs Group Inc. (GS), and multi-billion dollar sneaker manufacturer Nike Inc. (NKE).

Effective at the opening bell on September 23, the move marks the first triple-play change to the index since April 8, 2004. The most recent change in the DJI was last year’s removal of Kraft Foods (KFT) from the index when it split into two separate companies, KFT and spinoff snack standalone Mondelez International Inc. (MDLZ). The original KFT was replaced by health insurer UnitedHealth Group Inc. (UNH).

As always when the DJI’s lineup is changed, the addition of historical data and stats on the new members and the removal of the old will be factored in, so the changes should not disrupt the overall average in the short term.

Reasons for the change are the usual ones, involving company size and capital weighting. Bank of America, Hewlett-Packard, and Alcoa have suffered from significant drops in business since the 2007-2009 financial debacle, while the new additions to the average continue to experience robust growth.

Aluminum producer Alcoa in particular has been moribund for years. The deletion of AA and the two other stocks may have the effect of making the DJI more representative of America’s largest companies over time.

These changes ultimately matter to the DJI, as it is a price-weighted index, which means its value is based on the price of a company’s stock rather than its market value.

AP notes that General Electric Co. (GE) is now the only original member remaining in the Dow. The industrial giant was briefly delisted but has stayed in the index since its reinstatement in 1907.

Charles H. Dow created the index with the intention of giving the stock market credibility and making investing more understandable. The original Dow Jones industrial average had 12 members and was published May 26, 1896. It featured companies such as American Cotton Oil, Chicago Gas and U.S. Rubber.

–AP contributed to this report


Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17