General Electric, the global industrial equipment firm, has been removed from the Dow Jones Industrial Average. It had been a part of the index since the Dow’s creation in 1896. With GE’s removal, every original member of the index has now been removed.
GE will be replaced with Walgreen Boots Alliance, Inc., the mega drugstore chain created in a merger in 2014. GE had been the Dow’s worst performer this year, losing 26% of its value since the beginning of the year. It was the Dow’s worst performer last year as well.
GE has lost almost $140 billion in market capitalization over the last year, causing the company’s leadership to create a $20 billion plan to realign businesses, cuts costs and jettison assets. There has been weakening demand for the company’s products and the company is heavily indebted.
GE says it plans to forge ahead with its plans to revitalize the company despite yesterday’s decision. “We are focused on executing against the plan we’ve laid out to improve GE’s performance,” a statement issued by the company read. “[The Dow’s] announcement does nothing to change those commitments or our focus in creating in a stronger, simpler GE.”
The move does promise to have little bearing on GE’s financial performance, probably bruising the company’s ego more than its bottom line. The Dow itself has also seen its impact on markets decrease in recent years as investors gravitate toward larger, more representative indices such as the S&P 500. The Dow consists of thirty companies. Still, nearly $5 trillion is benchmarked to the measure, and the Dow is still considered the gold standard in market indices.
With the switch the Dow has lessened the number of industrial companies in its ranks, although it is still the biggest industry group represented at 23% of its members. Walgreens is categorized as a consumer-staples company which make up about 6% of the Dow. Health-care companies make up about 13%.
According to its website, the Dow inclines toward companies that have “excellent reputations, demonstrate sustained growth and is of interest to a large number of investors.” It also looks to create “adequate” sector representation, it says.
Photo by GE