In a historic reorganization of some of the Dow Jones "Industrial" Average's key consitutents, moments ago S&P Dow Jones Indices announced that energy giant, and the world's largest company as recently as 2014, Exxon Mobil will be kicked out of the benchmark index, and will be replaced by Salesforce.com, additionally Amgen will replace Pfizer, and Honeywell International will replace Raytheon Technologies.
According to the announcement, the index changes were prompted by something as trivial DJIA constituent Apple's decision to split its stock 4:1, which will reduce the index's weight in the Global Industry Classification Standard (GICS) Information Technology sector. "The announced changes help offset that reduction. They also help diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy."
In other news, billions of capital were created and destroyed for now other reason than i) the AAPL's stock split and ii) because the Dow is a price-weighted index.
As the press release also explains, the changes won’t disrupt the level of the index: the divisor used to calculate the index from the components’ prices on their respective home exchanges will be changed prior to the opening on August 31, 2020. This procedure prevents any distortion in the index’s reflection of the portion of the U.S. stock market it is designed to measure. The new divisors can be found in the end-of-day index level files via the S&P Dow Jones Indices FTP site beginning on Friday, August 28, 2020.
Of course, what the historic reshuffling will do is mitigate adverse impact of the the continued collapse of the energy and the relentless shrinkage of Exxon Mobil which back in 2013 became the world's largest company with a paltry, by today's standards, market cap of $416 billion when it briefly surpassed AAPL.
The chart below shows the historical market cap of all six names:
In kneejerk reaction, Honeywell, Salesforce and Amgen all soared more than 4% after hours as traders rushed to frontrun the index inclusion; at the same time Exxon slumped another 2% as value investors just can't even catch a break.
If nothing else, today's dramatic transformation in the DJIA shows just how profound an impact Apple's decision to pursue a 4:1 stock split has had, not only on its stock which has gained nearly $250BN in the past week on retail buying, but also the price impact the resulting indexing will have on no less than 6 corporate giants.
In response, the snubbed Exxon should now announce a 40:1 stock split (because in this market the size of the stock split matters), regain the world's largest market cap on furious retail buying and make a triumphal return to the DJIA.