Dow index boosts its tech profile with addition of Salesforce

Justin Ho Aug 25, 2020
Heard on: Marketplace
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The floor of the New York Stock Exchange in March. The Dow Jones index has been updated to maintain its relevance, in one expert's view. Spencer Platt/Getty Images

Dow index boosts its tech profile with addition of Salesforce

Justin Ho Aug 25, 2020
The floor of the New York Stock Exchange in March. The Dow Jones index has been updated to maintain its relevance, in one expert's view. Spencer Platt/Getty Images
HTML EMBED:
COPY

The Dow Jones Industrial Average announced a big shakeup to the companies included in the index. Pfizer, Raytheon Technologies and Exxon Mobil are out, and Honeywell International, Amgen and Salesforce are in.

It is no coincidence that Salesforce is a giant tech company. And looping another big tech company into the Dow says a lot about how important tech is to this economy right now.

Late last month, the Dow had a problem on its hands. Its most valuable company, Apple, announced plans for a stock split. That meant more Apple shares and cheaper prices.

“This was not an ideal situation that we were looking at,” said Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.

Not ideal, he said, because a cheaper Apple share price would shrink the tech sector’s overall slice of the Dow. Silverblatt said that just wouldn’t have reflected how important tech is in the American economy. 

“The intent here is to emulate the market,” he said.

Silverblatt said Salesforce will help boost tech’s profile in the Dow, though tech companies make up a larger portion of the S&P 500 and the Nasdaq.

Evan Rawley, associate professor of strategic management and entrepreneurship at the University of Minnesota, said the Dow’s decision will help the index stay relevant.

“If their index is perceived as being a valid reflection of the U.S. economy, then it will help get more press and get more attention, and it will help the brand name of the Dow Jones company,” Rawley said.

Tech companies have been grabbing a bigger share of the U.S. economy for the past two decades, said Nathan Thooft, senior managing director and senior portfolio manager at Manulife Asset Management. He said tech will likely become even more important to the overall market with the growth of cloud computing and 5G technology.

“There’s a lot of trends that have been really favorable for tech stocks that have been in play and will likely continue to be in play for the foreseeable future,” Thooft said.

And, he said, COVID-19 has made tech an even bigger part of people’s lives.

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