TGIF! March 6, 2015

Spring-cleaning came early on Wall Street this year.  It’s out with the old and in with the new as Apple takes over AT&T’s place in the Dow Jones Industrial Average.  You may recall, the DOW is price weighted therefore the higher dollar priced stocks have a bigger impact on the index than the lower priced ones. At $126, Apple will be the 5th largest DOW component. At $33, AT&T had a much smaller impact.

With just 30 companies in the index, the Dow’s goal is to maintain a basket of large cap stocks that represent the US economy as a whole.  Visa’s recent 4-for-1 stock split announcement prompted the shuffling of the index. The credit card company, which represents roughly 10% of the index, is viewed as a Technology company, and Visa’s split would reduce its influence on the DOW index from 1st to 21st.

Apple had long believed to be on the short-list to become a member of the DOW 30, and its stock split and dividend hike last year secured its position in our mind.  Apple will account for roughly 5% of the DOW.

It was almost 100 years ago, in 1916 that the original American Telephone & Telegraph Company joined the Dow Jones Industrial Average. But keep in mind, today’s AT&T is much different than the original “Ma Bell.” After the split up in the 1980’s, “Ma Bell” was done. Today’s AT&T is really the legacy SBC Global, one of the survivors from the split who later acquired Pacific Bell and merged with what was left of AT&T, and took the heralded name.

Red returned on Wall Street this week as the Marker prepares for the inevitable Fed interest rate hike. The strong job number for February suggests it could come this Summer. It needs to happen, and a Fed rate hike will be healthy long-term once the inevitable short-term gyrations get worked out.

Apple is by far the largest American company today with a market cap over $700 Billion. The DOW needs it for stock market relevance. However, the DOW committee’s timing has not always been perfect. Apple will put this track record to the test, and it’s iWatch release Monday will be a new beginning.  Stay tuned…

We’ll be back dark and early on Monday.

By: Mike Frazier

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