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Is The Dow Jones Industrial Average starting to show its age?After all, few fund managers benchmark their funds against the best-known barometer of the stock market, though some exchange traded funds (ETFs) do use it. Pundits routinely decry the Dow as being unrepresentative of the broader market for not including Google Inc. (NASDAQ: GOOG) among other reasons. Nonetheless, the Dow usually remains the first to be mentioned in media reports about the stock market, while the S&P 500, the more widely used index, comes in last.
That's why when the publisher of the Wall Street Journal, which began the index 111 years ago, makes changes, people pay attention. Dow Jones, now owned by News Corp (NYSE: NWS), today announced that Bank of America Corp. (NYSE: BAC) and Chevron Corp. (NYSE: CVX) would replace Altria Group Inc. (NYSE: MO) and Honeywell International Inc. (NYSE: HON), in the Dow, the first changes to the index since April 2004.
The addition of Bank of America is strange given the continued turmoil around the subprime mortgage scandal which has caused shares of financial companies to tumble. Shares of Charlotte-based Bank of America, which agreed last month to buy subprime mortgage poster child Countrywide Financial Corp. (NYSE: CFC) for $4 billion, are down 20% over the past year.
Altria is restructuring, so it's not surprising that it would get kicked out of the index, but the decision to boot Honeywell is puzzling. Shares of the conglomerate are up 24% over the past year compared with a 9% gain in Chevron. The index keepers argued that the New Jersey company was dropped because it's the smallest industrial in terms of revenue and earnings. Chevron has been in the Dow twice before and was booted most recently in 1999.
Remember that just because the Dow doesn't like the stock, that doesn't mean investors should dislike it as well.
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