The new additions will 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,” according to S&P.
The changes to the index will go into effect on August 31. They won’t change the level of the Dow, because the S&P is changing the “Dow divisior” that is used to calculate the level of the index based on the performance of the component stocks.
The Dow is designed to be a way to measure the strength or weakness of the entire US stock market, and Monday’s changes hint at some broader shifts in the American economy. Being part of the Dow is a symbol of prestige, but it doesn’t necessarily help or hurt a company’s stock. Most ETFs and index funds trade the much broader S&P 500, among other indexes, rather than the 30 Dow stocks.
Defense contractor Raytheon, through its United Technologies merger, has been in the Dow consistently since 1939.
Pfizer was added to the Dow in April 2004 (it replaced Kodak, which had been on the index since 1930).
Cloud computing and customer relationship management company Salesforce has likely been boosted by work-from-home policies during the pandemic.
Salesforce, Amgen and Honeywell shares were all up around 4% in after-hours trading Monday. Exxon, Raytheon and Pfizer shares fell around 2%, 3% and 2%, respectively.