Amazon's Inclusion in Dow Jones

Amazon's Inclusion in the Dow Jones Industrial Average

Amazon.com Inc.’s recent inclusion in the Dow Jones Industrial Average index has sparked discussions about the index's "relevance," as noted by experts at Ned Davis Research.

Tech Titans in the Dow

The replacement of Walgreens Boots Alliance Inc. with Amazon has increased the exposure of the Dow to megacap technology companies, driving U.S. equity benchmarks to new heights. However, according to Ed Clissold and London Stockton of Ned Davis, the Dow could benefit from more "tech titans" to maintain its relevance.

Lagging Behind the S&P 500

Despite retaining significant exposure to financials, healthcare, and consumer-discretionary stocks, the Dow remains underweight in the tech sector compared to the S&P 500. This has led to a 6.9% underperformance against the S&P 500 over the last year, positioning it in the bottom tier of relative returns.

Weighting and Classification

Unlike market capitalization-based weightings, the Dow utilizes a divisor system, influencing stock movements in the index. Even though Amazon is classified as a consumer-discretionary stock, it is often associated with major tech companies like Apple, Microsoft, and Salesforce.

Potential Additions

While the Dow includes tech giants like Apple and Microsoft, notable names such as Alphabet and Nvidia are absent. Adding such major tech players could make the Dow more appealing to investors and enhance its relatability.

Market Performance

On Monday, stock markets experienced moderate declines, with the Dow down by 0.2%, the S&P 500 by 0.3%, and the Nasdaq Composite by less than 0.1%. The ongoing debate surrounding the Dow's composition reflects the evolving landscape of the stock market.

We may see further adjustments in major indexes as corporations strive to reflect the changing dynamics of the market.