Dow Jones & Co yesterday replaced three of America's oldest companies in its benchmark Dow Jones Industrial Average in a move that reflects the growing importance of the financial and health care sectors to the US economy.
AT&T Corp, Eastman Kodak Co and International Paper Co will be dropped from the blue-chip Dow index in favor of insurer American International Group Inc, drugmaker Pfizer Inc, and phone company Verizon Communications, Dow Jones said.
The changes help make the blue-chip Dow Jones Industrial Average -- the world's best known market gauge -- more closely mirror the US economy's waning reliance on the factory sector.
"It probably says something, if you look at the components of the Dow, about the overall composition of the US economy," said Deutsche bank analyst Mark Wilde. "If you look at the long term, manufacturing is a smaller and smaller piece."
The Dow, made up of 30 bellwether companies, fell modestly in the first quarter of this year, a decline that followed a 25 percent gain last year.
"Changes have been made before and are an attempt to stay in touch with the times," said Jack Schannep, editor of TheDowTheory.com based in Tucson, Arizona. "In the longer run, you'd think the Dow will rise to levels it would not have seen with the older, stodgier stocks."
The changes, effective at the open of trading on April 8, are the first shifts in the 107-year-old stock index since 1999, when four of the Dow stocks were replaced. The composition of the Dow index is decided by the editors of The Wall Street Journal, published by Dow Jones & Co.
The most recent shift was made to "recognize trends within the US stock market, including the continued growth of the financial and healthcare sectors and the diminishing relative weight of basic materials stocks," Paul Steiger, managing editor of The Wall Street Journal, said in a news release.
More than US$20 billion in assets are directly tied to the index through various licensed products such as exchange-traded funds like Diamonds Trust and Dow futures options, said Dow spokeswoman Sybille Reitz.
The Dow, unlike most other stock gauges, including the widely tracked Standard & Poor's 500 index is not weighted for market capitalization, so stocks with higher prices have a greater impact than lower priced stocks.
"It's really a reflection of trends that have been in place for a while," said John Prestbo, editor of the Dow Jones Indexes. "The Dow's composition was getting a little bit out of step with the composition of the market and the economy."
Kodak, which joined the Dow on July 18, 1930, has been going through a tough transition as it moves away from film and toward digital imaging. AT&T was in the Dow from 1916 to 1928, and then re-entered the index in 1939. International Paper has been a member since 1956.
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