Tuesday, February 12th, 2008
Dow Swaps Out Altria, Honeywell for Bank of America, Chevron
By Jennifer Yousfi
Managing Editor
In the first changes to the 111-year old blue-chip stock index since April 2004, Bank of America Corp. (BAC) and Chevron Corp. (CVX) will replace Altria Group Inc. (MO) and Honeywell International Inc. (HON) in the Dow Jones Industrial Average.
"While people follow the S&P 500 to get a broad feel for the market, the Dow Jones is still the average people recognize," Keith Wirtz, chief investment officer of Cincinnati-based Fifth Third Asset told Bloomberg. "[The changes are] an alignment of the average to reflect where earnings are emanating from in corporate America."
Bank of America is the largest U.S. bank based on market value, while Chevron is the nation’s fourth-largest fuel producer. Their addition to the oldest U.S. stock market index reflects the growing important of the finance and energy sectors in the U.S. economy.
"I’m glad oil’s back in there," Neil Hennessy, president and portfolio manager at Novato, Calif.-based Hennessy Advisors Inc., told Bloomberg. "That’s very representative of what’s happening not only in the U.S. but globally."
Chevron, which has been included in the Dow twice before, joins rival Exxon Mobil Corp. (XOM) as the only two oil and gas firms in the 30-component Dow.
Bank of America joins fellow financial sector firms: American Express & Co. (AXP), Citigroup Inc. (C), and JPMorgan Chase & Co. (JPM).
"The catalyst for these changes is the restructuring in progress at Altria, which will result in a much smaller and more narrowly focused company," Marcus Brauchli, managing editor of The Wall Street Journal, told Forbes.
Altria divested its Kraft Foods subsidiary in March of last year and also has plans to sell its international tobacco holdings.
"As usual when we make any change we review all the stocks," Brauchli said. "In doing so, we saw that the financials industry was under-represented - notwithstanding the current turbulence - and that the oil and gas industry’s growing importance to the world economy called for another representative to join Exxon Mobil Corp."
The changes will be effective at the opening bell on Feb. 19.
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