“There was a time when a tumble below $10 in the share price of a company in the Dow Jones industrial average meant ignominy,” Deepa Seetharaman reports for Reuters. “Now, after vertiginous stock market falls in recent months, five of the venerable index’s 30 components are trading under that price, including its two oldest members, conglomerate General Electric and automaker General Motors.”
“Citigroup stock plunged below $2 on Friday, making it cheaper than a medium cup of coffee at Starbucks,” Seetharaman reports. “Continued membership in the Dow of these battered stocks, which include aluminum producer Alcoa and Bank of America, is raising questions over whether the index should overhaul its lineup.”
Seetharaman reports, “It has also stoked a decades-old debate over whether the 112-year-old index is really an accurate snapshot of the overall U.S. economy. ‘It’s been out of touch for a while,’ said Jocelynn Drake, an equities analyst at Schaeffer’s Investment Research.
“Financial journalist Charles Dow created the index in 1896 to help investors track market trends in the absence of other metrics. Most investors, however, now use broader indexes such as the S&P 500 to follow stocks,” Seetharaman reports. “Still, the Dow is the most widely watched measure of the U.S. stock market and its members are considered an elite fraternity representing the best names in corporate America.”
Seetharaman reports, “The index is rarely altered but when it is, it is done so at the discretion of a team of editors at The Wall Street Journal. ‘I was surprised Citigroup was still a part of it,’ analyst Drake said. ‘GM is another one. I understand them trying to get a slice of the automotive sector but … it’s not a market mover anymore.’ Drake added that Google and computer giant Apple are more influential in the stock market.”
Full article here.
