S&P Dow Jones Indis said on Monday that the three new companies would join the 30-stock benchmark. Salesforce.com will replace Exxon Mobil, Amgen will replace Pfizer and Honeywell International will replace Raytheon Technologies.
The changes will take effect before the market opens on Monday, August 31.
The shake-up was prompted by Apple’s decision to implement a 4-for-1 stock split, which would significantly reduce the risk of benchmarks in the technology sector.
“Basically, Apple – by itself – took the technology [weighting] Down 27.6% to 20.3% within the Dow. This is a significant decline, “Howard Silverblut, senior index analyst at S&P Dow Jones Indix, told CNBC,” By adding Salesforce, you can get up to 23.1% of Dow’s technology. ”
As a result of Apple’s 4-for-1 stock split, its ranking dropped from the most heavily-weighted component to 16th. The 124-year blue-chip average is price-weighted, meaning that stocks with higher share prices are given more weight in the gauge.
Apple has grown more than 70% this year to become the first US company to hit a $ 2 trillion market capitalization. The technical name has contributed over 1,400 points so far this year, the biggest influencer ever. Without Apple’s heavy lifting, many in Wall Street believe it could have a hard time catching up with the Dow S&P 500 and the Nasdaq Composite, which have already reclaimed their respective records.
Silverblut said the 3-stock shake-up is “highly unusual.” “This is a huge volume, especially when you add to Apple, which significantly weighs it again. So we expect a lot of action, a lot of buying and selling on it.”
The stock swap also reiterates the changing picture of the market.
“The moves help remove overlaps between companies of similar scope and add new types of businesses that better reflect the US economy,” S&P Dow Jones Indix said in a statement.
Exxon has been a Dow component for almost 100 years. It was first added as New Jersey Standard Oil in 1928, when the benchmark expanded from 12 stocks to 30. Pfizer was added in late 2004. For Honeywell, it is a return to the Dow after being removed in February 2008.
“I am surprised by this news because energy still empowers the world but we know how favorable it is,” said Peter Bokover, chief investment officer of the Blakeley Advisory Group. “I’m not sure there is much difference between PFE and Amgen and Honeywell and Raytheon.”
Companies typically coveted a spot on the blue chip index, but not necessarily a boost for stocks. Walgreens is the most recent addition to the Dow, and its shares are down 40.9% since being added on June 26, 2018.
The Dow has gained 55% from its March 23 low, down 4% from its all-time high of 29,568.57 since February .12.
Shares of Salesforce and Amgen jumped 4% in extended trading on Monday after news, while Honeywell advanced 3%. Exxon, Pfizer and Raytheon were down about 2% after hours trading.
– CNBC’s Yun Li, Fred Embert and Kevin Stanikiewicz contributed reporting.