Amazon has joined the Dow, but the blue-chip index of 30 stocks is still light on tech, according to Ned Davis Research
Amazon.com Inc.’s inclusion in the more than 125-year-old Dow Jones Industrial Average index still leaves the popular stock-market barometer with a “relevance” problem, according to Ned Davis Researcher.
Amazon AMZN, -0.15% replaced Walgreens Boots Alliance Inc. WBA, -3.41% in the Dow DJIA on Monday, giving the 30-stock blue-chip index more exposure to the megacap technology companies that have helped drive U.S. equity benchmarks to fresh records.
But to stay relevant, the Dow could still use more “tech titans,” according to Ed Clissold, chief U.S. strategist at Ned Davis, and London Stockton, a research strategist at the firm.
While the “new” Dow retains its large exposures to financials, healthcare and consumer-discretionary stocks, the inclusion of Amazon still leaves it underweight in tech relative to the S&P 500 SPX.
“The DJIA has trailed the S&P 500 by 6.9% over the last 12 months, which puts it in the bottom 10% of trailing 12 months relative returns,” the Ned Davis team wrote in a Monday client note.
As MarketWatch’s Tomi Kilgore explained, instead of a weighting based on market capitalization, the Dow relies on a “divisor,” or a number that a Dow component’s price change is divided by to determine what effect that stock’s move has on the index.
Complicating matters, Amazon is classified as a consumer-discretionary stock, even though investors have been grouping it with the “Magnificent Seven” megacap tech stocks, which have helped elevate the S&P 500 above the 5,000-point mark to a series of record highs this year.
Among major tech companies, the Dow already includes Apple Inc. AAPL, -0.75%, Microsoft Corp. MSFT, -0.68% and Salesforce Inc. CRM, +2.59%, but excludes Google parent Alphabet Inc. GOOG, -4.50% GOOGL, -4.44% and Nvidia Corp. NVDA, +0.35%, among others.
Adding more major tech names could help keep the Dow “relatable to investors,” the Ned Davis team wrote.
Stocks were modestly lower Monday, with the Dow off 0.2% in afternoon trade, the S&P 500 down 0.3% and the Nasdaq Composite COMP off by less than 0.1%.