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Dow changes announced

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Dow changes announced

The Dow Jones Industrial Average changed shape on Tuesday morning when it was announced significant changes will be taking effect soon. Over the last two years we have seen no change within the index, however, the 30 stocks which comprise the index do change regularly. On September 20th, Alcoa (NYSE:AA) , which traditionally kicks off earnings season, along with Bank of America, which is the second-largest financial institution in the U.S., and Hewlett-Packard (NYSE:HPQ) , a technology blue chip, will be leaving the iconic big board. These stocks will be replaced by three more attractive, higher growth companies. In their place Goldman Sachs (NYSE:GS) , Nike (NYSE:NKE) , and Visa (NYSE:V) will look to help the averages higher. According to some analysts Visa and Goldman Sachs will play an integral role within the index. These two stocks will have the second and third highest respective weightings.

Moreover, the divisor Dow Jones uses to calculate the index will change to the point where a $1 move in any stock will move the index 6.5 points, compared with the previous 7.7 points. The three stocks leaving the Dow had an average price of only $15 while the new additions average nearly $135 per share. The down is a price weighted index, therefore, stocks which have large per share prices will have more influence within the average. David Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, told CNBC “We have made some big steps in terms of improving the index,”. In the months following the change it will be interesting to see if the changes contribute to the upside momentum seen this year. Goldman Sachs has already moved to the upside by 25 percent in 2013, while Visa has gained about 18 percent and Nike is up more than 30 percent. Traders typically look for the new additions to benefit from such inclusions. A number of Dow Jones related funds will be forced to start positions in these companies to ensure tracking efficiency.

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