Goodbye, Dow Oldies: Why Alcoa, BofA, and Hewlett-Packard Got the Boot
The Wall Street Journal reported Tuesday that effective September 20, Alcoa (NYSE:AA), Hewlett-Packard (NYSE:HPQ), and Bank of America (NYSE:BAC) would no longer be components of the Dow Jones Industrial Average. The companies will be replaced by Nike (NYSE:NKE), Visa (NYSE:V), and Goldman Sachs (NYSE:GS), respectively.
The first iteration of the Dow Jones Industrial Average as we know and love it today was first calculated in May 1896 with just 12 components. Of those 12, only General Electric (NYSE:GE) remains part of the index, which now boasts 30 of America’s most recognizable blue-chip companies: Exxon Mobil (NYSE:XOM) joined in 1928, Procter & Gamble (NYSE:PG) joined in 1932, and DuPont (NYSE:DD) joined for good in 1935.
Because the index samples what are effectively the country’s largest and most successful companies, it has served as a benchmark for U.S. business and economic conditions for more than a century. The DJIA is a barometer that economists, traders, investors, and business leaders use to inform their understanding of the environment in which they operate. The index is price weighted, meaning that the headline reading is a weighted function of the stock prices of its components: the higher the stock price, the heavier its weight.