What if Apple were part of the Dow?

May 10, 2012, 2:56 PM

AP Business Writer

(AP) – Apple is the world’s most valuable company. The Dow Jones industrial average is probably the world’s best-known stock index. So don’t they deserve each other?

Consider this: If Apple had been added to the Dow in June 2009, the last time there were serious rumors that it would happen, the average would be about 2,500 points higher than it is today and well above its all-time high.

Paul Hickey of Bespoke Investment Group, which crunches numbers about the markets, says the Dow would be at 15,360, about 1,200 points above its record of 14,164, set in October 2007. The Dow closed Wednesday at 12,835.

Not only would investors be perkier, but everyday Americans watching the Dow set one record after another would probably feel wealthier. That might inspire them to spend more money and help the economy grow faster.

But if you think the time is right for an Apple-Dow marriage, don’t check your mailbox for a wedding invitation. Apple, which redefined how people listen to music and reinvented the cellphone, is simply too hot for the Dow.

In 2009, when a bankrupt General Motors and a hobbled Citigroup were booted from the Dow and Apple was talked about as one replacement, Apple stock traded at about $144.

On Wednesday, it closed at $569. Because of how the Dow is calculated, Apple would dwarf the other stocks in the average and distort the Dow from its purpose _ which is to reflect the broad economy, not represent the hottest stocks.

A big one-day gain by Apple, like a $50 jump after it reported blockbuster earnings last month, would send the Dow higher by hundreds of points. Similarly, a big drop would suggest the market was in more trouble than it really was.

The Dow is weighted so that a $1 move by any stock, no matter how cheap or expensive, moves the average the same _ about seven and a half points as the Dow is calculated today.

Because it’s much easier for a $100 stock to move $1 than it is for a $20 stock, higher-priced stocks carry more importance. IBM, at about $200, is the most expensive stock and carries nearly 12 percent of the Dow’s weight.

Apple would carry a quarter or more, depending on which stock it replaced. That is why the Dow would be thousands of points higher if it had welcomed Apple in 2009: Each share of Apple has grown by hundreds of dollars since then.

“It wouldn’t be the Dow Jones industrial average,” says Nicholas Colas, chief market strategist at ConvergEx Group. “It would be the Apple Plus Some Other Stuff Index.”

Apple is already the biggest component of the other two major U.S. stock indexes: It makes up nearly 12 percent of the Nasdaq composite and more than 4 percent of the Standard & Poor’s 500.

The Dow was born in 1896 and has changed over the years to reflect the changing economy. Agricultural and coal companies have been replaced by banks and drug companies. Car makers have knocked off railroads.

Of the Dow’s 12 original stocks, only General Electric is still part of the index. So why not add Apple, which has enormous cultural pull and admiration throughout corporate America _ plus a market value of half a trillion dollars?

The goal is to pick businesses that can stay in the average for a long time, says John Prestbo, the executive editor of Dow Jones Indexes, which maintains the Dow and other indexes.

“We don’t run the Dow as we would an investment portfolio,” he says.

Prestbo, along with the managing editor of The Wall Street Journal and the research head of the CME Group, which owns a majority stake of Dow Jones Indexes, decide which companies make up the Dow.

They meet occasionally to discuss whether they need to change the index. The CME Group provides benchmark indexes on investments like agricultural products, energy and metals.

The Dow committee might boot a company if it’s no longer an industry leader, or if its industry is too heavily represented. Sometimes companies will ask to be included, which doesn’t necessarily hurt or help their case, Prestbo says.

Three years ago, when GM and Citigroup got the ax, the group snubbed Apple and chose Cisco Systems, which makes computer networking equipment, and Travelers Companies, the insurance provider.

Travelers has risen by about half since it was added to the Dow, but Cisco has moved slightly lower. In the hypothetical example provided by Bespoke, Apple would have replaced Cisco in 2009.

There’s some history behind the idea of having the most valuable company be part of the Dow. Exxon Mobil, which held the title until Apple wrested it in January, is a Dow member. Ten years ago, two Dow components, Microsoft and GE, jockeyed for the honor.

But Prestbo brushes off the what-if questions about Apple. Would the Dow be higher? Sure, he says. “But it also wouldn’t be tracking the market.”

(Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

United States News

Associated Press

Second fatal shooting this month near George Floyd Square

MINNEAPOLIS (AP) — One man died and another was seriously hurt in the second fatal shooting this month near the intersection where George Floyd died in police custody more than two years earlier. Minneapolis Police spokesman Officer Garrett Parten said officers found two wounded men with life-threatening injuries Sunday afternoon near the intersection in south […]
17 hours ago
(Facebook Photo/FBI Phoenix Division)...
KTAR.com

Armed Trump supporters protest in front of FBI Phoenix office

A group of supporters of former President Donald Trump armed themselves and gathered at the FBI office in Phoenix on Saturday to protest the recent search of his Mar-a-Lago home.
17 hours ago
Associated Press

Police: 2 dead after SUV crashes into N. Carolina restaurant

WILSON, N.C. (AP) — A sport utility vehicle crashed into a North Carolina fast-food restaurant on Sunday, killing two sibling customers, police said. The single-vehicle crash occurred at about 9:45 a.m. at a Hardee’s restaurant in the city of Wilson, around 40 miles (65 kilometers) east of the state capital, Raleigh. The Lincoln Aviator struck […]
17 hours ago
Associated Press

Hit-and-run on Chicago street leaves 3 dead, 1 injured

CHICAGO (AP) — Three people were killed and another injured when they were struck by a car during a hit-and-run on a Chicago street early Sunday, police said. A sedan hit the four males around 5 a.m. on the city’s South Side and then drove away, Chicago police said. No one was in custody, police […]
17 hours ago
Associated Press

Trial begins in shooting death of 7-year-old in Atlanta

ATLANTA (AP) — The trial is underway for a man accused of fatally shooting a 7-year-old girl who was riding in a car with her family after a day of Christmas shopping in Atlanta. Fulton County prosecutor Pat Dutcher said in his opening statement on Friday that Kennedy Maxie was struck by gunfire after the […]
17 hours ago
Navajo Code Talker Thomas Begay talks to people prior to the Arizona State Navajo Code Talkers Day ...
Associated Press

80 years later, Navajo Code Talker marks group’s early days

PHOENIX (AP) — It’s been 80 years since the first Navajo Code Talkers joined the Marines, transmitting messages using a code based on their then-unwritten native language to confound Japanese military cryptologists during World War II — and Thomas H. Begay, one of the last living members of the group, still remembers the struggle. “It […]
17 hours ago

Sponsored Articles

...
Sanderson Ford

Don’t let rising fuel prices stop you from traveling Arizona this summer

There's no better time to get out on the open road and see what the beautiful state of Arizona has to offer. But if the cost of gas is putting a cloud over your summer vacation plans, let Sanderson Ford help with their wide-range selection of electric vehicles.
...
Mayo Clinic Orthopedics and Sports Medicine

Why your student-athlete’s physical should be conducted by a sports medicine specialist

Dr. Anastasi from Mayo Clinic Orthopedics and Sports Medicine in Tempe answers some of the most common questions.
...
Carla Berg, MHS, Deputy Director, Public Health Services, Arizona Department of Health Services

Update your child’s vaccines before kindergarten

So, your little one starts kindergarten soon. How exciting! You still have a few months before the school year starts, so now’s the time to make sure students-to-be have the vaccines needed to stay safe as they head into a new chapter of life.