The Ottumwa Courier

AP National

September 10, 2013

Why the Dow is getting a makeover

(Continued)

Alcoa, Bank of America, and HP are still quality companies and remain in the S&P 500 index — which is a broader gauge of the U.S. stock market.

Q: WHY ARE GOLDMAN SACHS AND VISA BEING ADDED?

A: Goldman Sachs replaces Bank of America, so the Dow is swapping one financial company for another. It's a little different with the Visa-HP trade. While most people think of Visa as a financial company because of its credit and debit cards, Visa is actually a giant technology company focused on payment processing. Replacing HP with Visa is, in a way, a replacement of one technology company with another.

Q: WAIT, ALCOA IS AN ALUMINUM COMPANY AND NIKE MAKES SHOES. THAT DOESN'T MAKE SENSE.

A: There are a few reasons why Alcoa came out of the Dow. First, Alcoa shares were the lowest in the Dow at $8, meaning a movement in Alcoa's stock price would not have affected the Dow as much as IBM or Caterpillar. Secondly, the industry that Alcoa represents — mining and materials — only makes up about 3 percent to 3.5 percent of the overall U.S. stock market, says David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.

"We felt Alcoa's slot could be better used for something else," Blitzer says.

Blitzer says the committee felt the Dow had too few consumer discretionary companies in it and there was no apparel representation. Nike is big, well-known and stable. It has a huge business at home and abroad. Nike also trades at $66 a share, helping balance out the Dow.

Q: APPLE AND GOOGLE ARE HUGE COMPANIES. WHY DIDN'T THEY GET PICKED?

A: Apple and Google are too expensive to be in the Dow. Google's stock trades at nearly $900 and Apple shares are around $500, several times more expensive than the Dow's priciest members.

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