Apple will replace AT&T on the Dow Jones Industrial Average (DJIA) after markets close on March 19, S&P Dow Jones Indices announced on Friday. The DJIA provides a snapshot of how 30 American companies across various sectors are performing and, often, how American firms are reacting to global events. S&P Dow Jones suggested its choice of Apple will help the DJIA reflect American performance better than with AT&T in the index, and Apple’s 7-1 stock split last summer may have helped it gain its spot.
Apple’s currently the world’s most valuable company with a market cap of $745 billion and a share price at the time of publication of about $128. AT&T, meanwhile, has a market cap of $174.31 billion and a share price hovering around $33. Keep those numbers in mind, because S&P Dow Jones Indices managing director and chairman of the index committee David Blitzer explains why the share price matters in the index.
“The DJIA is price weighted so extremely high stock prices tend to distort the index while very low stock prices have little impact,” Blitzer explained. “Apple’s split brought the stock price down closer to the median price in the DJIA. The Visa split will reduce the technology weight in the DJIA and make room for Apple. Among the current DJIA constituents, AT&T has one of the lowest prices.”
That means Apple’s share price is closer to the index’s average, which helps it provide a better snapshot of American performance. The Cupertino, California-based company will join other American staples such as 3M, Boeing, American Express, Chevron, Coca-Cola, DuPont,ExxonMobile, General Eletric, IBM, Microsoft, McDonald’s, Wal-Mart, Verizon, Walt Disney and other firms spread across various industries including telecommunications, retail, banking, software, pharmaceuticals and oil and gas.