Microsoft And Intel Are Among Four Newcomers To Dow Jones Industrial Average

Dow Jones Newswires

NEW YORK -- Sweeping changes will be made to the Dow Jones Industrial Average of 30 leading blue-chip companies on Nov. 1, giving technology and telecommunications greater representation in the 103-year-old stock-market average and adding Nasdaq Stock Market issues to its roster for the first time.

The editors of The Wall Street Journal announced Tuesday that semiconductor titan Intel Corp. (INTC) and software giant Microsoft Corp. (MSFT), both traded on the Nasdaq Stock Market, will be among the newest Dow components. Also being added are specialty retailer Home Depot Inc. (HD) and telecommunications concern SBC Communications Inc. (SBC).

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To make room for the new blue chips, four veteran stocks are being dropped from the DJIA - Chevron Corp. (CHV); Goodyear Tire & Rubber Co. (GT); Sears, Roebuck & Co. (S); and Union Carbide Corp. (UK).

Intel and Microsoft are the first Dow 30 components that aren't listed on the New York Stock Exchange since the blue-chip average was created in 1896. The Dow Jones Transportation Average has included Nasdaq stocks since 1991.

"Today's changes in the Dow Jones Industrial Average represent a streamlining of its components on a sectoral basis, and are the culmination of a comprehensive review of the 30 stocks we undertook over the last several months. The Dow Jones Industrial Average now enters the 21st century, still the 'market's measure,'" said John A. Prestbo, editor of Dow Jones Indexes and market editor of the Journal.

The changes mirror the dramatic shift that has taken part in the U.S. economy over the past 25 years. Companies like Microsoft and Intel, founded in 1975 and 1968, respectively, have become dominant players in U.S. industry, pushing aside traditional industrial and energy companies.

Chevron had been a component of the Dow industrials since 1930 (as well as from 1924-25); Goodyear also since 1930; Sears since 1924; and Union Carbide since 1928.

The changes are an accurate reflection of the economy, Prestbo said. He said people shouldn't assume Home Depot is the direct replacement for Sears. With Wal-Mart Stores Inc. (WMT) already a Dow component, the general merchandise retail category is represented.

"What we didn't have was a specialty retailer, and in Home Depot we have a company that has really made a large impact on America in a specialty retailing line," Prestbo explained.

He said the pending acquisition of Union Carbide by Dow Chemical Co. (DOW) and year 2000 concerns compelled Dow Jones to change the Dow components.

In response to concerns the new additions could inflate an already heady Dow Jones Industrial Average, Prestbo said, "People do like some of these stocks because they're more growthy than some of the stocks that are leaving. However, I think this transition isn't as radical as it might be if we had selected other stocks like Internet stocks."

When questioned about the possibility of a Microsoft break-up and its impact on the Dow, he said, "We'll just have to take a look at whatever the situation is when we know the facts."

The Dow Jones Industrial Average, created by Dow Jones & Co. co-founder Charles H. Dow, first appeared May 26, 1896. The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely used indicator of stock market activity.

The DJIA initially comprised 12 companies, most of which are unfamiliar today: American Cotton Oil; American Sugar; American Tobacco; Chicago Gas; Distilling & Cattle Feeding; General Electric Co.; Laclede Gas; National Lead; North American; Tennessee Coal & Iron; U.S. Leather; and U.S. Rubber. GE is the only originial component still in the industrial average.

As the economy expanded, companies were added to the average. The first publication of an average comparable with today's 30 industrial stocks was Oct. 1, 1928. The average closed that day at 240.01. The Dow dropped to a low of 41.22 on July 8, 1932, and would take more than 40 years to reach 1000, first closing above that mark on Nov. 14, 1972.

The Dow Jones Industrial Average first closed above 2000 on Jan. 8, 1987; above 3000 on April 17, 1991; above 4000 on Feb. 23, 1995; above 5000 on Nov. 21, 1995; above 6000 on Oct. 14, 1996; above 7000 on Feb. 13, 1997; above 8000 on July 16, 1997; above 9000 on April 6, 1998; above 10,000 on March 29, 1999; and above 11,000 on May 3, 1999.

Dow Jones' flagship publication, The Wall Street Journal, is the keeper of the DJIA. Journal editors select the 30 companies that comprise the index.

"The stocks are chosen as representative of the broad market and of American industry," according to Journal Managing Editor Paul E. Steiger. "The companies are major factors in their industries, and their stock is widely held by individuals and institutional investors."

For the sake of continuity, changes in the Dow industrials components are kept to a minimum. Most substitutions have been the result of mergers, but from time to time changes may be made to achieve better representation.

Before now, the most recent changes in the DJIA came in March 1997, in another set of changes that mirrored the changing dynamics of corporate America. At that time, Hewlett-Packard Co. (HWP), Johnson & Johnson (JNJ), Wal-Mart Stores Inc. (WMT) and Travelers Group Inc, now Citigroup Inc. (C), replaced Texaco Inc. (TX), Bethlehem Steel Corp. (BS), Woolworth Corp. and Westinghouse Electric Corp.

Woolworth is now known as Venator Group Inc. (Z), while Westinghouse has been restructured and reborn as CBS Corp (CBS).

Tracking the Dow Jones Industrial Average is done second-by-second with computers, following a procedure developed a century ago when Charles Dow, using pencil and paper, added the stocks' closing prices, then simply divided by the number of issues.

The industrial average still is calculated by totaling the prices of the component stocks. But rather than divide that total by 30 (the number of stocks in the index), the total is divided by a regularly adjusted divisor, currently 0.19740463. (The divisor is published every business day inside the Money & Investing section of The Wall Street Journal.) The divisor, adjusted to maintain the historical continuity of the average, is recalculated for stock splits, spinoffs and changes in the component stocks.

Over the history of the average, the divisor has changed many times, mostly downward. This explains why the average can be reported as, for example, 10,000, although no single stock in the average approaches that price level. Today, a one dollar rise in the price of a component stock would raise the Dow Jones Industrial Average roughly five points, assuming prices of the other 29 stocks were unchanged.

Today, Journal editors maintain three other stock averages in addition to the Dow Jones Industrial Average. The other Dow Jones Averages include: the Transportation Average, composed of 20 transportation issues; the Utilities Average, with 15 utilities; and a Composite Average of all 65 stocks.

Information about the Dow Jones Industrial Average can be found at http://averages.dowjones.com. The site includes historical charts of the DJIA since its inception; the ability to search for the closing value of the DJIA on any date since 1896; big rises and falls; best and worst years for the average; comparisons with other indexes; and details on divisor changes.

In addition to the Journal and its international and interactive editions, Dow Jones (DJ) publishes this and other newswires, dowjones.com, as well as Barron's and other magazines. Dow Jones is also co-owner of Dow Jones Reuters Business Interactive LLC, and of the CNBC television operations in Asia and Europe. Dow Jones also provides news content to CNBC in the U.S.

Copyright (c) 1999 Dow Jones & Company, Inc.

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