First published in 1896, the Dow Industrials is America’s oldest stock average, and the index has just 30 companies in total. Despite its prestige, however, the inclusion of only 30 stocks has drawn criticism from financial advisors such as Ric Edelman, who do not believe the Dow accurately represents the market’s overall performance. Regardless, the Dow is the most cited and most widely recognized of stock markets indices and movements within the Dow, as evidenced by the addition and removal of companies, are big events for Wall Street.
Interestingly, the Wall Street Journal notes that the addition of Apple (which will become official on March 19th) could make the Dow “more vulnerable to sharp moves” as Apple’s shares tend to “swing almost twice as much as AT&T’s.” Still, most experts maintain that any significant changes would be unlikely. Instead, the presence of Apple on the Dow’s Industrial Index “cements” Apple as “the gold standard of technology” and is an acknowledgement of the ubiquitous presence of technology in our everyday lives.
Currently, the Dow Jones Industrial Average does not have many technology companies in its cohort of 30, but with Intel, Cisco Systems, Inc., IBM Corp., Microsoft and now Apple, “the ascendancy of tech in the Dow” that began in 1999 is said to be complete. Some industry leaders, however, caution against any untoward excitement. According to the WSJ, technology is believed to account for roughly 40 percent of U.S. gross domestic product; however, technology companies make up approximately 10 percent of the Dow’s Index. Indeed, Professor Josh Lerner at the Harvard Business School, told the WSJ, “The Dow is a lagging indicator of the economy” and needs to do more in order to be considered an accurate measure of the U.S.’s economic status.
On a related note, Apple’s inclusion in the Dow is particularly bad news for some involved parties. In particular, Apple was able to join the Dow only because it replaces AT&T, thus highlighting the challenges AT&T has experienced in its attempts to remain relevant; though, according to ABC News, its removal from the Dow was not triggered by any particular event. As Walter Piecyk told CNBC, “Telecom is diminishing in the grand scheme of things,” and technology has taken its stead as the future of business.
Ironically, Apple owes much of its success to its initial partnership with AT&T when the iPhone first became available in 2007, and for three years afterwards, during which AT&T was the exclusive carrier of the phone. Looking forward, AT&T must think beyond cell phones and determine how best to both engage its customers and increase brand awareness in an increasingly competitive business environment.
(Photo courtesy of Blake Patterson)