Amazon.com to Join the Dow Jones Industrial Average: A Game-Changer for the Retail Giant?

Amazon.com Inc. (AMZN) has been selected as the newest addition to the Dow Jones Industrial Average (DJIA), replacing Walgreens Boots Alliance Inc. (WBA). This move reflects the evolving nature of the American economy and is set to occur on February 26, 2024. The change will increase consumer retail exposure and other business areas in the DJIA. 

Parent company S&P made the decision after Walmart Inc. (WMT) announced a 3-for-1 stock split. The Dow Jones is a price weighted index so the lower WMT stock price would have weakened the influence consumers, who make up approximately 66% of the economy, have on the economy. This article will examine the potential impact of this move on AMZN's stock performance and investment value, as well as discuss the significance of the DJIA and the implications for the company and its investors.

The Dow Jones Industrial Average is a well-known stock market index in the United States, consisting of 30 prominent companies listed on U.S. stock exchanges. Changes to the DJIA's composition are relatively rare, with the index designed to reflect shifts in the U.S. economy and corporate landscape. Inclusion in the DJIA is often seen as an endorsement of a company's stability and importance in the economy.

Recent changes include:

- June 26, 2018, Walgreens replaced General Electric.

- April 2, 2019, Dow replaced DowDuPont.

- August 31, 2020, Salesforce replaced ExxonMobil.

- August 31, 2020 Honeywell replaced Raytheon.

- August 31, 2020, Amgen replaced Pfizer.

Short-Term Effects of Joining the DJIA

1. Positive Sentiment

The announcement of AMZN's inclusion in the DJIA has already generated positive sentiment, with investors viewing the move as a positive development for the company. This sentiment often leads to an immediate increase in the stock price due to heightened demand from investors.

2. Price Increase

The positive sentiment surrounding AMZN's inclusion in the DJIA has resulted in a short-term increase in the stock price. This is due to the heightened demand from investors who perceive the inclusion as a positive development for the company.

3. Index Fund Adjustments

Index funds and exchange-traded funds (ETFs) that track the DJIA need to adjust their portfolios to include the new stock, creating additional buying pressure on AMZN's shares.

4. Liquidity Boost

The stock typically experiences increased liquidity due to the higher trading volumes from both the adjustments by index funds and increased interest from retail and institutional investors.

Long-Term Effects of Joining the DJIA

1. Increased Visibility

Being part of the DJIA increases a company's visibility to investors, potentially leading to a broader shareholder base over time.

2. Enhanced Reputation

Inclusion in the DJIA is often viewed as a marker of a company's reliability and significance in its sector, which can enhance its reputation among investors and the public.

3. Stock Performance

The inclusion of AMZN in the DJIA has the potential to boost the company's stock performance over the long term. This is due to the increased visibility and reputation that comes with being part of the index, which can attract more investors and potentially lead to higher valuations.

Conclusion

The addition of Amazon.com Inc. (AMZN) to the Dow Jones Industrial Average is a significant development for the company and its investors. The move reflects the evolving nature of the American economy and is expected to increase consumer retail exposure and other business areas in the DJIA. The immediate and long-term effects of this change could lead to increased visibility, reputation, and stock performance for AMZN. As a result, investors should closely monitor the company's progress in the coming months and years as it joins the ranks of the DJIA's elite members.

$AMZN(AMZN)