Apple will boot giant telco AT&T off the oldest and most famous stock market index later this month, the people running the Dow Jones Industrial Average announced this morning.
The change will come into effect on the morning of Thursday March 19 and is timed to coincide with a stock split by Visa, one of the other 29 companies in the index.
According to Dow Jones, that share split by Visa will "reduce the weighting of the Information Technology sector in the index" and so it's goodbye to AT&T – which has dropped 4.5 per cent in the past year – and hello to the largest corporation in the world, Apple.
The telco sector will now be represented only by Verizon – which will no doubt cause significant teeth-gnashing at the AT&T – and there will be six technology companies in the index: Apple, Cisco, IBM, Intel, Microsoft, and Visa.
The Dow Jones Industrial Average, known simply as "the Dow," is one of the key indicators of stock market health and was first calculated in 1896 by the company's co-founder Charles Dow, making it the second oldest stock index in the US. It is currently owned by McGraw-Hill Financial.
The index represents about a quarter of the value of the entire US stock market but is an unusual index in that it contains just 30 publicly traded companies, chosen to provide breadth across the economy. The next most famous index, the S&P 500, uses, as its name suggests, the stock prices of the 500 largest companies.
The Dow's value is not the actual average of the prices of its component stocks, but rather the sum of the component prices divided by a divisor, which changes whenever one of the component stocks has a stock split or stock dividend. That creates a consistent value for the index.
Changes to the 30 companies included in the Dow is not very common. The last big change was in 2013 when Goldman Sachs, Nike, and Visa were added. In the past decade, there have been just 15 changes to the index.
"As the largest corporation in the world and a leader in technology, Apple is the clear choice for the Dow Jones Industrial Average, the most recognized stock market measure," says David Blitzer, Managing Director of the Dow's Index Committee.
There has been criticism in the past that the Dow did not include Apple when it added other tech companies, such as Microsoft and Cisco. The move has been widely welcomed by the financial industry and may help the index regain some of its appeal, which has been flagging in recent years. ®