Amazon Replaces Walgreens in Dow Index Shakeup
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The Dow replaced Walgreens with Amazon this week to offset Walmart's stock split reducing its weight in the index. Walgreens was the lowest weighted Dow component.
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The Dow is calculated based on component share prices, unlike the S&P 500 which uses market capitalization. This makes the Dow cumbersome.
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Being added to or removed from the Dow has little impact on a company's share price since little money tracks the index. The opposite is true for the S&P 500.
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Walgreens' brief 6-year tenure in the Dow was unusually short. Its 60% share price drop since joining in 2018 caused it to lag the Dow's 60% rise.
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Tweaks to the archaic Dow Divisor are needed to offset component changes like Walmart's stock split. $5.75 trillion tracks the S&P 500 compared to only $87 billion for the Dow.