Why Alphabet, Nvidia, and Others Belong in the Dow Jones Industrials

Dow changes are infrequent—the last occurred in 2020. The Dow is price-weighted, meaning it’s driven by price changes in its 30 component stocks. This differs from other indexes, like the S&P 500, which is market-cap weighted. As a result, the priciest Dow stocks—

UnitedHealth Group
,

Home Depot
,

Microsoft
,
and

McDonald’s

—account for about a third of the index. Alphabet’s pre-split price is so high that it would overwhelm the index.

The three 2020 changes to the Dow weren’t well timed. The worst move was the addition of

Salesforce.com

and removal of

Exxon Mobil

just before energy prices took off. Salesforce has fallen 15%, while Exxon has doubled.

Amgen
,
down 10%, replaced

Pfizer
,
up 40%, just before its Covid vaccine was approved.

Honeywell

replaced

Raytheon Technologies

and has underperformed it. We estimate the moves may have cost the Dow 800 points.

Meanwhile, Alphabet is a juggernaut. Nvidia is one of the world’s top chip makers. Meta dominates social media, despite recent woes. Berkshire has ample earnings and a formidable balance sheet. NextEra is a top utility and a leading owner of renewable power. Three of the four have stock prices above $100. NextEra is currently at $76.

Which Dow stocks might go? Two candidates are insurer

Travelers

and chemical company

Dow
.

Next Week

Monday 2/7

Amgen
,

Hasbro
,

Principal Financial Group
,

Simon Property Group
,

Take-Two Interactive Software
,

Tyson Foods
,
and Zimmer Biomet Holdings report quarterly results.

The Federal Reserve reports consumer credit data for December. Consumer credit is expected to rise at a seasonally adjusted annual rate of 4.3%, after jumping 11% in November. After falling slightly in 2020 due to the pandemic-induced lockdowns, total consumer debt has returned to its long-term upward trend and currently stands at $4.41 trillion.

Tuesday 2/8

BP
,
Carrier Global,

Centene
,

Chipotle Mexican Grill
,

DuPont
,

Enphase Energy
,

Fiserv
,

Gartner
,

Incyte
,

KKR
,

Lyft
,

Pfizer
,
S&P Global,

Sysco
,
and

TransDigm Group

release earnings.

The National Federation of Independent Business reports its Small Business Optimism Index for January. Consensus estimate is for a 98 reading, just below the December figure.

Wednesday 2/9

Walt Disney

reports first-quarter fiscal 2022 results. Shares of the entertainment behemoth are down 8% this year and 20% since September, when CEO Bob Chapek warned about slower growth for Disney+.

CME Group
,

CVS Health
,

Equifax
,

GlaxoSmithKline
,

Honda Motor
,

MGM Resorts International
,

Motorola Solutions
,

O’Reilly Automotive
,

Toyota Motor
,
and Yum! Brands report quarterly results.

Thursday 2/10

AstraZeneca
,

Brookfield Asset Management
,

Coca-Cola
,

DaVita
,

Duke Energy
,

Expedia Group
,
Global Payments,

Illumina
,

Interpublic Group
,
Kellogg,

Laboratory Corp. of America Holdings
,
Linde,

Martin Marietta Materials
,
Moody’s, PepsiCo,

Philip Morris International
,
and

Twitter

hold conference calls on quarterly results.

The Bureau of Labor Statistics reports the consumer price index for January. Economists forecast a 7.3% year-over-year spike, after a 7% jump in November. The core CPI, which excludes volatile food and energy prices, is seen rising 5.9%, compared with 5.5% previously. Both estimates would surpass recent peaks and be the highest readings for their respective indexes since 1982.

The Department of Labor reports initial jobless claims for the week ending on Feb. 5. After averaging a postpandemic low of just 201,200 a week in December, jobless claims have risen to 255,000 in January, in part due to the surge of Omicron cases.

Friday 2/11

Enbridge
,

Dominion Energy
,

Newell Brands
,
and

Under Armour

announce earnings.

The University of Michigan releases its Consumer Sentiment Survey for February. Consensus estimate is for a 67.5 reading, roughly even with the January figure. The January reading was the lowest for the survey since November of 2011, driven by consumers’ expectations of future inflation and rising housing costs.

Write to Andrew Bary at [email protected]