Why Apple is replacing AT&T in the Dow

Stan Alcorn Mar 6, 2015
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Why Apple is replacing AT&T in the Dow

Stan Alcorn Mar 6, 2015
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After the market closes on March 18, 2015, Apple will replace AT&T as one of the 30 blue-chip stocks that make up the Dow Jones Industrial Average. It will not make waves in the financial markets, because relatively little money is actually invested in funds pegged to this index. But it’s nonetheless a sign of a sea change in the American economy. 

The composition of the Dow is decided by a committee of five, led by committee chair David Blitzer. He says the decision to change the index started not with Apple or AT&T but with Visa. The company split its stock, reducing its share price, and because the Dow is simply an average of companies’ share prices, this unbalanced the portfolio. To rebalance it, since Visa is classified as a tech company, Blitzer says they had to ad another tech company.

“Apple is everybody’s obvious choice,” Blitzer says. “Nobody even thought about arguing against Apple.” 

Adding Apple required removing another company, and Blitzer says he and his partners picked AT&T because they needed to reduce the index’s share of telecommunications companies, and the index also includes Verizon.

But Jim Angel, associate professor of finance at the McDonough School of Business at Georgetown University, says it’s also a sign of AT&T’s declining significance, and the rise of the “iCompany.”

Roger Kay, president of Endpoint Technologies Associates, adds that Apple, unlike Google or Facebook, has a long track record of making and selling tangible products.

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