Source: Finance Association

The Dow Jones Industrial Average Index, which is compiled with the stocks of 30 famous industrial companies, is still one of the most influential and widely used stock indices in the world. In history, any adjustment of its constituent stocks has often attracted the attention of the entire Wall Street and even the global market.

Now, after Microsoft and Apple, this blue-chip index, which only covers 30 constituent stocks, will soon be included in another of the “Big Seven” US companies that are currently popular in the industry —$Amazon (AMZN.US)$!

S&P Dow Jones Indices (S&P Dow Jones Indices), which manages the Dow, issued an announcement after the market on Tuesday local time, saying that starting next Monday, the US online retail giant Amazon will be included in the Dow Jones Industrial Average Stock Price Index to replace$Walgreens Boots Alliance (WBA.US)$.

Driven by this news, Amazon's stock price rose more than 1% after the market (down 1.43% at the close on Tuesday), while Walbo Link fell nearly 3% after the market.

S&P Dow Jones Indices said the adjustment was triggered by Walmart's stock split of 1 split of 3 shares effective next week. Walmart's stock split will reduce its weight in the Dow and will also reduce the weight of consumer necessities stocks.

Furthermore, S&P Dow Jones Indices said that this adjustment also reflects the continuous evolution of the US economy.

A committee composed of representatives of S&P Dow Jones Indices and the Wall Street Journal is responsible for determining the composition of the Dow. They need to correct the index after the stock split. Only constituent stocks in the S&P 500 index are eligible for inclusion. Meanwhile, the Dow Jones Industrial Average does not cover utilities and transportation companies; these two industries are covered by other Dow Jones indices.

Looking back at the last adjustment of the Dow as a share, it also dates back to almost three and a half years ago in August 2020. That change was also driven by Apple's stock split. Salesforce, Amgen (Amgen), and Honeywell International (Honeywell International) replaced Exxon Mobil (Exxon Mobil), Pfizer (Pfizer), and Raytheon Technologies (Raytheon Technologies).

What is the impact of Amazon replacing Voronet?

Judging from recent trends, the Dow's performance has actually always lagged behind the S&P 500 index and the NASDAQ. Take last year so far as an example. Although the Dow was the first to reach record highs in the US, its increase over the past year was only 16%, far behind 30% of the S&P 500 index and 49% of the NASDAQ.

This is largely due to the low weight of technology stocks in the Dow, and the dividends of the AI wave that can be enjoyed are limited. Before Amazon was included in the Dow next week, there were actually only two US “Big Seven” companies, Apple and Microsoft, in the blue chip index.

Since the 30 companies covered by the Dow account for only a small portion of the current thousands of listed companies in the US, and most of them are blue chips, not including many companies in the service industry and technology industry that have developed rapidly in recent years, the representative character of the Dow has also been questioned and criticized by people in recent years.

Amazon's addition is undoubtedly expected to partially improve these flaws. Amazon has been one of the most prominent companies in the stock market for over a year. Strong holiday online spending needs to help Amazon achieve a rapid recovery after the pandemic, while the AI boom is also driving its cloud computing division to achieve impressive sales performance.

Since the beginning of last year, Amazon's stock price has almost doubled, and the market capitalization is now over $1.7 trillion.

Of course, if you want to count on Amazon's inclusion, the extent to which it will push the Dow to seize this boom in tech giants is also more or less extravagant. Unlike the S&P 500 and NASDAQ, the Dow is weighted by stock price rather than market capitalization. The Dow is calculated by adding the prices of the 30 constituent stocks and then dividing by a factor that takes into account changes such as stock splits and the addition of new individual stocks.

This means that companies with higher stock prices have a greater influence on the Dow trend, regardless of their total market capitalization.

According to its weight and influence in the Dow, Amazon is expected to rank 17th after being included, while Walmart will drop from 17th to 26th after the stock split. UnitedHealth Group (UnitedHealth Group) will continue to be number one — it currently weighs about 9% in the Dow. Microsoft and Goldman Sachs followed, with around 7%.

And Wobble United, which is about to be selected from the index, currently has the least weight in the Dow (about 0.4%). The company was included as a component of the Dow Index for a short time — it was included in the index in June 2018, when it succeeded General Electric (General Electric). However, since then, the trend of the stock has been difficult. The stock price has fallen by more than 2/3 since it was included, and last year it was at the bottom of the Dow Index's constituent stocks.

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