With the formal addition of Google's parent company, Alphabet (stock codes: GOOGL, GOOG), to the Dow Jones Industrial Average, this 130-year-old blue-chip index is further concentrating its holdings in major technology stocks, which are already the core components of the Nasdaq-100 Index.
This index rebalancing will see Verizon Communications (VZ) removed, allowing Alphabet to join other tech giants like Nvidia, Apple, Microsoft, and Amazon as a Dow component.
However, the Dow has not yet assembled the complete set of the "Magnificent Seven" U.S. tech giants, as Meta Platforms and Tesla remain outside the Dow Jones Industrial Average.
The market style shift brought about by this adjustment is quite pronounced.
The Dow Jones index still retains many leaders from traditional economic sectors:
Caterpillar has gained nearly 75% year-to-date, Cisco is up almost 60%, and Goldman Sachs, UnitedHealth, Honeywell, and Johnson & Johnson have all posted double-digit gains for the year.
Even so, the current price action of the Dow's top-weighted stocks is now highly aligned with the core trends of the Nasdaq, though index adjustments often lag behind these market movements.
Changes to the Dow Jones components mostly serve as a post-facto acknowledgment of already-established market trends. At the end of August 2020, Salesforce replaced ExxonMobil in the Dow. Statistics from Yahoo Finance based on AlphaSpace data show that since that adjustment, ExxonMobil's stock price has surged over 240%, while Salesforce's has declined more than 40%.
A stock's inclusion in the Dow Jones index itself is not necessarily a buy signal; sometimes it merely signifies that the company has grown so large the market can no longer ignore it.
The subsequent stock performance of Alphabet will be a key test following this index change.
Currently, GOOGL's price is hovering near a previous breakout zone, attempting to turn a former resistance level into support. If this support level holds, it would mean the Dow has added a leading stock that remains favored by capital. If the support fails, it would indicate the Dow is moving closer to the high-volatility style of the Nasdaq just as large-cap tech stocks are showing weakness.
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