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Wednesday Feb 21 2024 14:01
5 min
Amazon.com Inc. is poised to become a member of the Dow Jones Industrial Average (DJIA) in a week, an inclusion aimed at showcasing the dynamic nature of the U.S. economy, according to a statement from S&P Dow Jones Indices on Tuesday evening.
“Reflecting the evolving nature of the American economy, this change will increase consumer retail exposure as well as other business areas in the DJIA,” S&P Dow Jones said.
The e-commerce giant is set to replace Walgreens Boots Alliance Inc. within the DJIA — a move influenced by Walmart's recent 3-for-1 stock split.
Following the announcement of the Walmart stock split late last month, the retail corporation will maintain its position in the DJIA, as confirmed by the index provider.
After the announcement, Amazon shares saw a 1.3% increase in after-hours trading, whereas Walgreens stock saw a 3% decline.
At the time of writing on Wednesday, Amazon stock was trading up 0.68% in premarket hours. Walgreens shares remained down 2.96%.
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S&P Dow Jones Indices also announced that Uber Technologies Inc. would take the place of JetBlue Airways Corp. in the Dow Jones Transportation Average (DJT), with both changes set to be implemented before the opening bell on February 26.
This adjustment aims to bring the index closer to the ride-sharing sector, influenced by JetBlue's minimal presence in the index — under one-half of one percent — due to its low stock price. The Dow Jones Transportation Average operates as a price-weighted index.
JetBlue is currently challenging a court decision that halted its merger with Spirit Airlines Inc., striving to secure a position in the ultra-low-cost carrier market and the domestic leisure travel segment. The airline is also contesting a ruling that obstructed its regional partnership with American Airlines Group Inc.
The decision to swap retail pharmacy Walgreens for tech behemoth Amazon in the Dow might come at a bad time, according to Barron’s reporter Brian Swint.
The rationale behind the move appears to be sound, as Walgreens has been facing numerous challenges and has ceased to be a dependable barometer for the overall vitality of the U.S. stock market — a role the DJIA aims to fulfill. The company's stock has plummeted by nearly 40% in the last year.
However, Walgreens' struggles are not the sole factor behind the Dow's lackluster performance. Over the past year, the Dow has seen a 14% increase, lagging behind the 22% rise in the S&P 500 index and the Nasdaq's 42% surge. The reason for that is the meteoric rise of technology stocks — specifically the Magnificent Seven that have contributed the bulk of index gains since the start of 2023.
As of now, only Apple and Microsoft from that group are in the Dow. Amazon shares, with their 74% 12-month gain, is a welcome addition.
“Amazon, like Walgreens, can be considered a consumer retail stock—unlike peers such as Meta Platforms or Alphabet. But it also generates a lot of its growth from its cloud computer services unit. Its recent gains are on the back of tech services buzz, not selling goods.
Still, it isn’t like the Dow is cheating. Tech stocks are arguably underrepresented in the index anyway, so Amazon seems like a reasonable hybrid. And—similar to when the Dow started in 1896 with companies dealing in tobacco, cotton, and railroads—technology stocks are the pillars of the U.S. stock market. They deserve a heavy weighting,” Swint wrote in Barron’s daily newsletter on Wednesday.
The issue lies in the Federal Reserve's inclination to keep interest rates "higher for longer.”
On a day marked by the release of Federal Reserve meeting minutes and Nvidia's financial results, there will be speculation about whether the “Magnificent Seven” is nearing its end of its remarkable run.
When considering shares and indices for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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