Dow Jones Industrial Average struggling for ‘relevance’ despite Amazon’s addition, say researchers

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Amazon.com Inc.’s inclusion in the more than 125-year-old Dow Jones Industrial Average still leaves the popular stock-market barometer with a “relevance” problem, according to Ned Davis Researcher.

Amazon
AMZN,
-1.95%
replaced Walgreens Boots Alliance Inc.
WBA,
+2.09%
in the Dow
DJIA
on Monday, giving the 30-stock index more exposure to the megacap technology companies that have helped drive U.S. equity benchmarks to fresh records.

But to stay relevant, the blue-chip Dow could still use more “tech titans,” according to Ed Clissold, chief U.S. strategist at Ned Davis, and London Stockton, a research strategist at the firm.

The “new” Dow retains its large exposures to financial, healthcare and consumer-discretionary stocks, while even the inclusion of Amazon leaves it underweight in tech relative to the S&P 500
SPX.

“The DJIA has trailed the S&P 500 by 6.9% over the last 12 months, which puts it in the bottom 10% of trailing 12 months relative returns,” the Ned Davis team wrote in a Monday client note.

As MarketWatch’s Tomi Kilgore explained, instead of a weighting based on market capitalization, the Dow relies on a “divisor,” or a number that a Dow component’s price change is divided by to determine what effect that stock’s move has on the index.

Mark Hulbert: Why Amazon and Uber investors might wish those stocks weren’t joining Dow indexes

Also read: Amazon’s stock could lose to Walgreens’ this year if the Dow jinx holds

Complicating matters, Amazon is classified as a consumer-discretionary stock, even though investors have been grouping it with the “Magnificent Seven” megacap tech stocks, which have helped elevate the S&P 500 above the 5,000 mark to a series of record highs this year.

Among major tech companies, the Dow already includes Apple Inc.
AAPL,
-2.84%,
Microsoft Corp.
MSFT,
-2.96%
and Salesforce Inc.
CRM,
-5.05%
but excludes Google parent Alphabet Inc.
GOOG,
-0.31%

GOOGL,
-0.51%
and Nvidia Corp.
NVDA,
+0.86%,
among other notable absences.

Adding more major tech names could help keep the Dow “relatable to investors,” the Ned Davis team wrote.

Stocks were modestly lower Monday, with the Dow off 0.2% in afternoon trade, the S&P 500 down 0.3% and the Nasdaq Composite
COMP
off by less than 0.1%.

Tomi Kilgore contributed.

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