What You Need To Know
S&P Dow Jones Indices has announced changes to the Dow Jones Industrial Average (DJIA) and Dow Jones Transportation Average (DJTA) that will take effect on February 26, 2024.
In the DJIA, Amazon.com Inc. (NASDAQ: AMZN) will replace Walgreens Boots Alliance Inc. (NASDAQ: WBA), reflecting the changing landscape of the American economy and increasing consumer retail exposure in the index.
This change was prompted by Walmart Inc. (NYSE: WMT) decision to split its stock 3:1, reducing its index weight due to the price weighted construction of the index. However, Walmart will remain in the DJIA.
Additionally, in the DJTA, Uber Technologies Inc. (NYSE: UBER) will replace JetBlue Airways Corp. (NASDAQ: JBLU), providing the index with exposure to the ride-sharing industry. This change was prompted by JetBlue's low weight in the index, which is determined by the stock's price. The indices' divisors will be adjusted to prevent any distortion in their reflection of the U.S. stock market.
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Why This Is Important for Retail Investors
Increased exposure to consumer retail: With the addition of Amazon.com to the Dow Jones Industrial Average, retail investors now have greater exposure to the consumer retail sector. This can provide valuable insights into the performance and trends within this industry, allowing investors to make more informed decisions.
Reflecting the evolving economy: The inclusion of Amazon.com and Uber stock in these key indices reflects the changing nature of the American economy. Retail investors can stay updated on these market shifts and ensure their investment portfolios align with the current economic landscape.
Broadening investment opportunities: The addition of Uber to the Dow Jones Transportation Average opens up investment opportunities in the growing ride-sharing industry. Retail investors can now diversify their portfolios by accessing this sector through a well-established index.
Adjusting to stock splits: The replacement of Walgreens Boots Alliance in the DJIA was prompted by Walmart's stock split. Retail investors need to be aware of such adjustments as they can impact index weights and the overall performance of the index. Understanding these changes is crucial to managing investment strategies effectively.
Tracking market performance accurately: The adjustment of the indices' divisors ensures that the indices accurately reflect the portion of the U.S. stock market they are designed to measure. By maintaining accurate calculations, retail investors can rely on these indices to track overall market performance more effectively, providing valuable insights for investment decision-making.
How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Growth Investing
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
The addition of Amazon.com (AMZN) to the Dow Jones Industrial Average (DJIA) presents an opportunity for growth investors to explore the potential of the retail sector and benefit from the expanding e-commerce market.
Dividend Investing
Dividend investing targets companies that regularly distribute a portion of their earnings to shareholders as dividends.
Retail investors can consider the impact of these changes on dividend-paying stocks within the indices, such as Walgreens Boots Alliance (WBA stock), and evaluate if there are new opportunities for dividend-focused investing strategies.
Sector Rotation
Sector Rotation is the practice of shifting investment capital from one industry sector to another to take advantage of the economic cycle.
The inclusion of Uber in the Dow Jones Transportation Average allows investors to reevaluate their sector allocation and potentially rotate towards the ride-sharing industry, capitalizing on its growth and disrupting traditional transportation sectors.
Thematic Investing
Thematic Investing selects assets based on projected trends or themes believed to offer growth opportunities.
With the significant presence of Amazon.com and Uber in their respective sectors, investors could explore thematic investing strategies related to retail innovation and the future of transportation.
Geographic Diversification
Geographic Diversification expands a portfolio's reach by investing in assets across different regions to mitigate the risk associated with any single country.
Investors could assess the impact of these changes on the geographical diversification of their portfolios, considering the presence of Amazon.com and Uber in the US market and their potential influence on global markets.
Read What Others Are Saying
Reuters: Amazon to replace Walgreens in Dow Jones Industrial Average
CNBC: Amazon to replace Walgreens in Dow Industrial Average next week
Bloomberg: Amazon to Join DJIA, Uber to Join DJ Transportation
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Popular ETFs
Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. Some popular ETFs include the following:
Large-Caps: Vanguard Mega Cap ETF (MGC)
Mid-Caps: Vanguard Mid-Cap ETF (VO)
Small-Caps: Vanguard Small-Cap ETF (VB)
Growth: iShares Core S&P U.S. Growth ETF (IUSG)
Value: iShares Core S&P US Value ETF (IUSV)