Well, that didn’t last long.
Raytheon’s brief moment in the spotlight of the Dow Jones industrial average will end next week. The Waltham aerospace company’s time in the most often-quoted stock index lasted all of five months. That’s a mere blip compared to the decadeslong tenures of many of the other 29 companies listed in the Dow.
It’s not quite that simple: Raytheon’s predecessor company, United Technologies Corp., had been in the Dow average in some form or another since the 1930s. When Raytheon and UTC merged in April, the surviving company adopted Raytheon’s name and headquarters. It was that merger that put Raytheon on the short list that is the DJIA.
UTC, meanwhile, has changed dramatically. This was not just a mere name change or a headquarters move. Chief executive Greg Hayes broke up the conglomerate. The Carrier heating-and-cooling division was spun off, as was the Otis elevator business. UTC had also bulked up its aerospace business by acquiring Rockwell Collins in late 2018.
Even before the Raytheon merger was announced last year, there was some speculation that UTC would get booted from the Dow Jones industrial average because of the pending breakup. UTC would become a pure-play aerospace company, creating significant overlap with Boeing, another Dow Jones mainstay.
S&P Global, which controls the index, hinted at this overlap in its announcement Monday of a significant overhaul of the Dow. ExxonMobil and Pfizer will be shown the door as well, as of Aug. 30. Meanwhile, Salesforce.com, Amgen, and Honeywell will join the exclusive club.
Ostensibly, the trigger for all these changes was Dow member Apple’s decision to hold a 4-to-1 stock split. That maneuver doesn’t change Apple’s market value on its own, but it certainly reduces the price of each share in the company. The Dow is what’s known as a price-weighted index, meaning the moves of higher-priced stocks have a bigger impact on it than lower-priced stocks. Suddenly, Apple’s clout on the Dow was diminished significantly, and thus the tech sector’s weight in the index was as well.
S&P Global, in its brief statement, said the newest members help offset the reduction in the IT sector’s clout in the index. (Presumably, S&P Global is talking about Salesforce here.) The changes, S&P Global said, “also help diversify the index by removing overlap between companies of similar scope” — i.e., Raytheon and Boeing — and “adding new types of businesses that better reflect the American economy.”
What does it mean for Raytheon? It shouldn’t mean much, really. Relatively few institutional investors build portfolios around the Dow. Most index-based funds are focused on broader groups of stocks, such as the Standard & Poor’s 500 and the Nasdaq Composite. Wall Street greeted the news with a collective shrug: Raytheon’s stock fell by only 1.5 percent Tuesday.
But it does mean a loss of bragging rights for Massachusetts. This was the only local stock in the Dow average. The state once had General Electric — another industrial company that relocated here from Connecticut. (UTC had been based in Farmington, while GE was in Fairfield.) S&P Global swapped out GE for Walgreens Boots Alliance in 2018, saying that the pharmacy operator’s inclusion made the index a better measure of the economy. The prolonged stock slump at GE certainly didn’t help matters.
GE’s stock continued its plummet: It now trades around $6.50 a share, around half the price when it exited the Dow. Whether Raytheon’s stock can avoid the same fate, and start soaring again after its own slump, remains to be seen.