Goldman Sachs Group Inc., Visa (V) Inc. and Nike Inc. (NKE) will be added to the Dow Jones Industrial Average (INDU), replacing Bank of America Corp. (BAC), Hewlett-Packard Co. (HPQ)and Alcoa Inc. (AA) in the biggest reshuffling since April 2004.
The changes will boost the influence of banking and computer companies in the 30-membergauge as the fifth-biggest U.S. bank by assets and the largest payment network join seven other financial and technology firms, such as JPMorgan Chase & Co. and Cisco Systems Inc. Bank of America exits even after rising 109 percent in 2012, the Dow's largest gain. The changes will take effect after the close on Sept. 20.
Moves announced today by a committee that includes editors of the Wall Street Journal will give extra influence to the average's newest members, due to the way the gauge is designed. Since Dow proportions are determined by stock price rather than market value, shares of Visa and Goldman Sachs, which trade above $160 apiece, will have about seven times the weighting as the constituents they replace.
"The Dow is going to look and act very differently," Dan Greenhaus, a strategist at BTIG LLC, said in a note to clients. "Visa would become the second-most important stock in the index and Goldman Sachs the third-most important."
The Dow's price-weighting system has proven a barrier to inclusion for some of America's most-heavily traded technology stocks. Apple Inc. (AAPL) and Google Inc. (GOOG), which change hands above $500, have been left out. At the same time, the three companies to be removed had the lowest prices in the average.
David Fuller's view Higher prices for the incoming shares will
certainly make the Dow livelier. Here are the incoming shares: Goldman
Sachs, Nike and Visa.
Here are the outgoing three: Alcoa,
Bank of America and Hewlett-Packard.
If they had done this a year ago, or any time over the last few years, the Dow would be much higher today. The high priced newcomers will increase the Dow's downside risk during the next significant shakeout.