Markets & Stocks
Dow goes more digital
October 26, 1999: 4:49 p.m. ET

Tech titans Intel, Microsoft added; Sears, Goodyear among those out
By Staff Writer Jamey Keaten
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NEW YORK (CNNfn) - In one of the biggest shake-ups in its 103-year history, the Dow Jones industrial average entered the Digital Age Tuesday by dropping such time-honored companies as Goodyear and Sears in favor of tech titans Microsoft and Intel.
     The move, adopted by editors at the Wall Street Journal, signals the shift in market leadership from the powerhouses of the Rust Belt to the kingpins of technology. Dow Jones & Co. is the publisher of the Journal.
     On the way out are Goodyear Tire (GT) and Sears Roebuck (S), as well as Union Carbide (UK) and Chevron (CHV). In their places are Microsoft (MSFT) and Intel (INTC), plus the regional phone giant SBC Communications (SBC) and home improvement retailer Home Depot (HD). The changes go into effect on Monday.
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All of the new issues, except for Home Depot, are among the most widely held stocks in the country.
     And in another sea change, the addition of Microsoft and Intel marks the first time Nasdaq stocks will join the industrial average, which was introduced in 1896. That comes as the Nasdaq and the New York Stock Exchange jockey for investors' dollars -- both with each other and a host of upstart trading systems.
     The moves are significant for individual investors, who are likely to see stock-index funds change in composition. Tech stocks, once synonymous with volatility, also should gain credibility as a safer bet.
     Shares of the new initiates were mostly higher Tuesday: Microsoft climbed 7/8 to 93-5/16, Intel jumped 1-11/32 to 72-19/32, SBC rose 1-9/16 to 45-13/16, but Home Depot lost 1-1/16 to 70-7/8. Sears slumped 1-11/16 to 27-3/16, Goodyear shed 3-7/8 to 41-5/16, Chevron lost 1-13/16 to 88-3/16, while Union Carbide, bolstered somewhat by pending merger plans, fell 1/8 to 59-3/8.

     Market strategists praised the move, saying it was long overdue. Last year, the government estimated that the information technology sector accounts for about 8.2 percent of total output.
     "It's a smart move," said Tony Dwyer, a stock market strategist with Kirlin Holdings. "It's more reflective of what the average investor views of the economy."
     "It's about time," said Craig Ellis, a portfolio manager with investment firm Orbitex Management Inc. "It echoes where we are going with the economy -- and it's long overdue."
     As of Monday, the Dow industrial average was up 12.7 percent for the year while Home Depot is up 20 percent, Microsoft is up 33 percent, Intel is up 24 percent, and SBC is down 17 percent.
     "The four stocks you are adding have done much better than the four you are taking out, and they have much better prospects," Ken Tower, director of technical research at UST Securities, told CNNfn.
     The last change to the Dow industrials came in 1997, in another step toward better representation of the tech sector. Then, Hewlett-Packard replaced Texaco, Johnson & Johnson replaced Bethlehem Steel, Travelers Group replaced Westinghouse, and Wal-Mart replaced Woolworth.
Out with old economy, in with new

     The alteration by Dow Jones underscores a belief that new large-scale companies are a better mirror of the economy than the industrial powerhouses of old.
     Sears Roebuck, whose mail-order catalogs were once a key way for rural America to buy its wares, had been in the index since 1924, exactly 75 years. The advent of Home Depot, founded in 1978, shows how suburbia -- and requisite home improvement -- is now the nation's center of demographic gravity.
     The removal of Union Carbide, a maker of chemicals and polymers, shows that the era has waned when "plastics" were a buzzword for many a growth-minded investor -- replaced to a large degree by "the Net" and "chips."
     Union Carbide has been in the Dow for 71 years. But its status as a Dow component came under review following its announcement of an $11.6 billion buyout by Dow Chemical Co. (DOW) in August. Dow Chemical and Dow Jones (DJ) aren't related.
     Chevron had been an industrial average component since 1930 as well as in 1924-25. The oil sector still will be represented in the Dow by industry leader Exxon (XON), set to merge with Mobil (MOB).
     Goodyear has been in the Dow since 1930, but its market value -- at just over $6.5 billion -- is the least of any in the average.
     On the other hand, software powerhouse Microsoft is the nation's most valuable company, worth some $500 billion. Because the Dow is price-weighted -- meaning prices are more important that market value overall -- Microsoft won't dominate it.
     Intel is the biggest maker of semiconductors, the brains inside computers. The Dow now will have 4 technology issues, including current Dow stocks IBM (IBM) and Hewlett-Packard (HWP).
     And in a nod to the growing importance of cyberspace, SBC Communications is the top deliverer of Internet access in the country.
A decision to move markets

     The new look for the so-called "market's measure" comes at a time that markets, too, are grappling with technological change. Dow Jones said the decision was months in the making.
     In a statement, Paul Steiger, the Journal's managing editor, said the changes are meant to make the Dow "more representative of the evolving U.S. economy."
     Dow Jones spokesman Richard Tofel said Steiger and John Prestbo, editor of Dow Jones Indexes and markets editor for the Journal, were the two editors who decided on the Dow change. Steiger was to have told NYSE Chairman Richard Grasso of the changes on Tuesday morning.
     Tofel said there was no negotiation with any stock exchange prior to the decision. Still, the Nasdaq's top executive agreed the changes were necessary.
     "All of the indexes need to reflect the world of the new economy," Frank Zarb, the chairman and CEO of the National Association of Securities Dealers, told CNNfn. "This is a step in the right direction."
     Now that the Dow has more of a technology component, there may be less need to keep tabs on the Nasdaq composite index -- a major Dow competitor and a bellwether for the health of the technology sector. "It's something you always worry about," said Zarb.
     Microsoft and Intel have intermittently been the subject of speculation that they would move over to the New York Stock Exchange, and the change by Dow Jones may foment such talk. The one-letter trading symbols "I" and "M" both are unused.
     "Microsoft is happy with the Nasdaq; we grew up with the Nasdaq," said Microsoft spokesman Tom Pilla. "While we admire the NYSE, we have no plans to change that right now." Back to top


Dow buying Union Carbide - Aug. 4, 1999