On the morning of August 25, 2020, we learned of some changes that took place yesterday in the composition of the Dow Jones U.S. benchmark index. Indeed, Salesforce, Amgen and Honeywell International have entered the index, while Exxon Mobil, Pfizer and Raytheon Rechnology have left it. This entry will be effective as of August 31. Let's come back to this news together.
It is indeed following the decision of the Apple group to divide the nominal value of its share by four after the close of last Friday's session that these changes are taking place. Indeed, this division will thus reduce the weight of Apple in the composition of the technology sector.
It should be remembered that the Dow Jones Industrial Average is an index weighted according to the value of the stocks that make it up and not according to the market capitalization of each company. Thus, by including Salesforce in its composition, it will mitigate the decline in the technology sector caused by the Apple group's decision.
But that's not all! Indeed, the announced changes will also serve to diversify this index by removing duplicates of groups of the same size and integrating new types of companies in order to better reflect the American economy.
The fact that the Exxon Mobil group is exiting this index at the end of the month, even though it is the leader in the oil sector in the United States, is also a surprise for some investors since this company entered the index in 1928 and was the world's largest capitalization in 2011. One could compare this story to that of General Electric which was excluded from this index in 2018 after having been the first world capitalization in 2000 and because of its increasingly weak capitalization. But Exxon Mobil is still worth $173 billion today. So it is the fact that the oil sector is currently experiencing a loss of investor interest that explains this exit, even as environmental funds and NGOs are calling en masse for disinvestment in the sector. It is therefore Salesforce, a company specialising in the high-tech sector that will take its place.
The official speech first explains that these changes aim to make room for technological values following Apple's decision and as we have just explained above. It remains to be seen how the market will react to this announcement and how the price of these different values will be able to behave from September onwards. These few actions will of course be to be followed with the greatest attention by studying in particular the news of each sector and of the companies themselves.