Dow set to add Alphabet and drop Verizon
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The Dow Jones Industrial Average is set to get even less "industrial" on Monday morning, when the index of 30 stocks drops Verizon to add Google parent Alphabet.
The big picture: Though largely irrelevant to investors now, the 130-year-old blue-chip index is still the shorthand for "stock market" among many Americans, who gauge the economy based on whether the Dow went up or down that day.
Zoom in: Alphabet is now a dominant AI player, and its inclusion in the Dow is symbolic of AI's increasing pervasiveness in both the stock market and the economy.
- "Alphabet isn't a search company that does AI on the side. It is an AI infrastructure company that happens to still dominate search," Mark Malek, chief investment officer at Siebert, wrote in a note Thursday.
- "The Dow's decision to include it is, intentionally or not, a blue-chip endorsement of that transformation."
How it works: The Dow weighs stocks based on price instead of market cap like the S&P 500 and Nasdaq — so a company with an expensive stock gets more weight than a company with an enormous market cap.
- Which means that a company like Goldman Sachs, with a stock price of more than $1,000 and market cap of around $300 billion, has more weight than Apple, with a stock price around $280 and a market cap above $4 trillion.
Between the lines: This is silly and why investors don't put too much stock (forgive the pun) in the index — and why during the recent controversy over SpaceX's fast-track inclusion in major stock indexes, you didn't hear much about the Dow.
Flashback: The index was established in 1896 to track the big companies of the day, 12 businesses that dealt in real physical goods, including American Sugar, American Tobacco, Chicago Gas, Tennessee Coal and Iron and U.S. Leather.
- "These were the commanding heights of the American economy — the companies that fed factories, clothed workers, and powered the furnaces of industrial expansion," Malek wrote.
The bottom line: We're in the midst of an un-industrial revolution.
