Amazon now included in the Dow Jones Industrial Average

And what does the addition mean for Amazon stock?

There has been much debate about whether the price-weighted Dow is still a relevant market indicator.

It’s true that the S&P 500 reflects a broader swath of the economy and also tracks the smaller side of the large-cap universe, as well as more obscure stocks.

Investors can invest in the entire basket of Dow stocks with the SPDR Dow Jones Industrial Average ETF Trust NYSEARCA: SLIDEThe Dow has been trading lower in recent sessions as major component UnitedHealth Group Inc. NYSE:UNH have been left speechless following reports that the insurance giant is the subject of a federal government antitrust investigation.

Troubled Walgreens stock replaced

Amazon shares fell 0.87% after joining the Dow on Feb. 26, replacing Walgreens Boots Alliance Inc. NASDAQ: WBAwhose stock price has fallen 15.47% over the past five years and 5.60% over the past 10 years, joined the Dow in 2018.

Walgreens, like other pharmacy chains, is struggling with declining profits. It had the lowest price in the Dow before it was removed.

In the past, being included in the DJIA was a signal to investors, analysts and the financial media that a company is a pillar of the American economy.

However, this is something that pretty much everyone with a pulse on Amazon already knows. In fact, you might even wonder why it took Amazon so long to get consensus.

Walmart’s stock split paved the way for Amazon

A key factor in Amazon’s inclusion was that of Walmart Inc New York Stock Exchange: WMT announcement of a three-for-one stock split. This resulted in lower representation of the retail sector in the index, a problem resolved by the addition of Amazon.

The Dow’s price-weighted methodology has an effect on which companies are included. In June 2022, Amazon shares split 20-for-1. Before that, a price of $2,400 would have meant complete domination of the index.

In comparison, UnitedHealth shares trade at around $488, with the stock accounting for 8.63% of the index’s weight.

Amazon’s price was $174.53 at the time of its entry into the Dow. It represents approximately 2.92% of the index weighting.

After the split, Walmart shares now account for about 1% of the index’s weight.

Dow selection is not governed by strict rules

According to S&P Dow Jones Indices, “Although stock selection for the Dow is not governed by a rigid set of rules, the committee focuses on an eligible company’s reputation, its history of sustained growth, its attractiveness to investors, and on its sectoral representation of the market. broader market.”

There has been a greater emphasis on technology stocks over the past 25 years, with Intel Corp. NASDAQ: INTCMicrosoft Corp. NASDAQ: MSFTSalesforce Inc. New York Stock Exchange: CRM and Apple Inc. NASDAQ:AAPL they all become Dow components.

Transportation and utilities stocks are tracked in the Dow Jones averages and are not part of the DJIA.

But will joining the Dow really mean much for Amazon stock?