As The Dow Turns

Those of us who have 401(k) plans regularly check on the stock market indexes to see whether the market is “up” or “down.”  One of the oldest and most well-down stock price indexes is the Dow Jones Industrial Average, which is often called a “blue chip” index because it includes some of the biggest companies in the country.  The Dow, the Standard & Poor’s 500, and the NASDAQ are a kind of financial pulse of the United States, consulted to see whether the economy is robust and healthy or weak and failing.

Most of us don’t really pay attention to it, but the Dow is supposed to represent a kind of reflection of the American economy as a whole.  And because the American economy is ever-changing, that means the roster of companies that make up the Dow has to change, too.  The last remaining member of the original Dow, which started in 1896, was General Electric, which ended a 122-year run in the index in 2018.  Sometimes the changes happen because the companies in the Dow falter, or are acquired, or succeed to the point where their stock splits, which would have an affect on the overall average.  And sometimes the index changes because the American economy is just moving in a different direction.

That point was driven home this week when it was announced that some of the well-known companies in the U.S. are being dropped from the Dow index and replaced by some of the companies in our “new economy.”  Energy giant ExxonMobil, which has been part of the Dow since 1928, will end its run at the end of this month.  In its stead, a company I’ve never heard of called Salesforce.com — described as an “enterprise software” concern — will join the Dow.  Pfizer, the drug company, and Raytheon, a well-known defense contractor, also will be taken off the index list, to be replaced by Amgen and Honeywell.  The changes are being made to account for Apple’s stock split and, according to the folks who run the index, are intended to “add new types of businesses that better reflect the American economy.”

The original Dow included companies like American Sugar, National Lead, Chicago Gas, and U.S. Leather, along with General Electric.  Now we’re talking about “enterprise software” concerns, biotech firms, and diversified technology conglomerates, and they are being added because a company that makes computers, smartphones, and other devices has been so successful that it is undergoing a stock split.  That’s a pretty good indication of how our economy has evolved, and how the evolution continues.