Exxon, Pfizer, Raytheon kicked out of Dow index: here’s why

Oil giant Exxon Mobil Corporation (NYSE: XOM), health care behemoth Pfizer Inc (NYSE: PFE), and advanced electronics systems company for military applications Raytheon Technologies Corp (NYSE: RTX) were all booted from the Dow Jones Industrial Average.

Apple the culprit

S&P Dow Jones Indices, the entity responsible for managing the iconic and historic Dow index, said Exxon, Pfizer, and Raytheon will be replaced with biotechnology company Amgen, Inc. (NASDAQ: AMGN), cloud company Salesforce.com, inc. (NYSE: CRM), and the global conglomerate Honeywell International Inc. (NYSE: HON), The Wall Street Journal reported.

The reason for the switch can be attributed to iPhone maker Apple Inc. (NASDAQ: AAPL) exceeding the $2 trillion valuation mark for the first time ever. The index operator took a closer look at the Dow and its impact from Apple’s announced a four-for-one stock split.

The Dow is a price-weighted index that means lower-priced stocks contribute less to the index. So after Apple’s stock price is slashed by a factor of four, the information-technology sector of which Apple is a member would see its representation in the Dow shrink.

Howard Silverblatt, a senior index analyst with S&P Dow Jones Indices, told WSJ the stock split would lower the information technology group’s weighting from nearly 28% to 20%.

The new names

The addition of Amgen, Salesforce, and Honeywell to the index also diversifies the Dow and better reflects the American economy, S&P said in a statement. All three newcomers boast large stock spices so they will exert influence on the index’s movement in either direction.

Shares of Salesforce are up nearly 40% in 2020 at $208.46 as the subscription-based business software company is among the few companies that offer solutions to the work-from-home community. 

Amgen, a biotech pioneer, is up 18% this year amid a broader surge in healthcare-related stocks. The company’s large portfolio of drugs is involved in multiple tests to see their use case in treating people impacted by COVID-19.

Honeywell’s stock on the other hand is up just 2% and closed at $159.37. The company brings a rich history to the index, first joining the Dow in 1925 when it was called Allied Chemical & Dye. It was removed from the index in early 2008.

By contrast, Exxon and Raytheon’s stock were each down by at least 30% although Pfizer, another COVID-19 play, is down just 1%. Exxon’s departure from the index marks the end of the oil company’s inclusion in the Dow dating to 1928 when it was known as Standard Oil of New Jersey.