The Dow Jones industrial average is shaking up its roster.
Alcoa, Bank of America, and Hewlett-Packard — three stalwarts of corporate America that have fallen out of favor lately with investors — will be removed from the Dow, to be replaced by Goldman Sachs, Visa, and Nike, the parent company of the index said Tuesday.
The change, which will go into effect after the close of trading on Sept. 20, is the largest revision to the index since April 2004, when AT&T, Eastman Kodak, and International Paper were dropped. And it reflects the changing landscape on Wall Street and in the broader economy.
The decision to remove the three companies was prompted by their sagging stock prices and the index committee’s desire to diversify the mix of companies represented, according to S&P Dow Jones Indices, the company that operates the index.
It will not affect the level of the index because the underlying calculation will be adjusted, the company said.
With 30 blue-chip companies as its members, the Dow Jones index is closely watched as a barometer of the broader market.
With 30 blue-chip companies as its members, the Dow index is closely watched as a barometer of the broader market. It has recovered strongly since the turmoil of the financial crisis and is up about 15 percent this year.
In contrast to the Standard & Poor’s 500, the Dow is calculated as a price-weighted index, so the stocks with the highest share price have the greatest weight. The three stocks being removed are priced in the single- or low double-digit range, putting them on the lower end of stocks in the index.
For Alcoa, its exclusion is a symbolic comedown. The aluminum company, which joined the index in 1959, has traditionally kicked off earnings season. In recent years, the company has contended with a global slump in aluminum demand.
“The composition of the Dow Jones industrial average has no impact on Alcoa’s ability to successfully execute our strategy,” Alcoa said in a statement Tuesday.
Bank of America and HP, more recent entrants to the Dow, are each confronting challenges of their own.
The bank, whose entry into the Dow was announced in November 2008, has been working to shrink its business in the aftermath of the financial crisis. It has faced an array of legal issues, many stemming from its acquisition of Countrywide Financial in 2008.
While Bank of America’s stock is still trading well below its precrisis level, it has experienced gains in recent months after doubling last year.
HP was the Dow’s second computer company when it was added in 1997, coming after IBM. Now, it is fighting to turn around its business.
The new entrants are seen as having relatively bright futures. Goldman has survived the financial crisis in better shape than its rivals. Visa has enjoyed a buoyant stock price in recent years on the strength of new payment technology. Nike, too, has experienced a rising stock price in recent years.