Major changes are coming to the Dow Jones Industrial Average.
S&P Dow Jones Indices said Monday that three new companies will be joining the 30-stock benchmark index. Salesforce.com will replace Exxon Mobil, Amgen will replace Pfizer and Honeywell International will replace Raytheon Technologies.
The changes will go into effect before the market opens on Monday, August 31.
The shake-up was prompted by Apple’s decision to enact a 4-for-1 stock split, which would significantly reduce the benchmark’s exposure to the technology sector.
“Basically, Apple — by itself — took the technology [weighting] within the Dow down from 27.6% to 20.3%. It’s a significant decline,” Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told CNBC. “By adding Salesforce, you can come back to 23.1% of the Dow being in technology.”
As a result of Apple’s 4-for-1 stock split, its ranking is set to drop from the most heavily-weighted component all the way down to 16th. The 124-year-old blue-chip average is price-weighted, meaning stocks with higher share prices are given greater weight in the gauge.
Apple has soared more than 70% this year to become the first U.S. company to hit a $2 trillion market capitalization. The tech juggernaut has contributed more than 1,400 points to the Dow in 2020, by far the biggest influencer. Without Apple’s heavy-lifting, many on Wall Street believe the Dow could have a harder time catching up with the S&P 500 and the Nasdaq Composite, which have already reclaimed their respective records.
The changes also encapsulate the changing picture of the market.
The moves “help diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy,” S&P Dow Jones Indices said in a statement.
Exxon has been a Dow component for nearly 100 years. It was first added as Standard Oil of New Jersey in 1928 when the benchmark expanded to 30 stocks from 12 stocks. For Honeywell, it marks a return to the Dow, after it was removed in February 2008.
“I’m surprised by the news as energy still powers the world but we know how out of favor it is,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “I’m not sure there is much difference between PFE and Amgen nor Honeywell and Raytheon.”
The Dow has gained about 55% from its March 23 low, sitting 4% below its all-time high of 29,568.57 from Feb.12.
Shares of Salesforce and Amgen jumped 4% in extended trading on Monday following the news, while Honeywell advanced 3%.
– CNBC’s Yun Li and Fred Imbert contributed reporting.