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Breaking news! Nvidia will be included.

AInvestSaturday, Nov 2, 2024 9:00 pm ET
1min read

Major US stock indices will be adjusted.

On November 1, the Dow Jones Index Company announced that Nvidia and Sherwin-Williams would be included in the Dow Jones Industrial Average (Dow). The decision will take effect before the market opens on Friday (November 8).

Announcement screenshot

Why the adjustment?

The Dow Jones Company's announcement showed that Nvidia Corporation (NASDAQ:NVDA) would replace Intel Corporation, and Sherwin-Williams (NYSE:SHW, a global paint supplier) would replace Dow Chemicals. The press release said that the index adjustment was made to ensure higher representation of the semiconductor industry and the materials industry.

Media analysis believes that the inclusion of Nvidia is a "major overhaul" of the blue-chip index, reflecting the rapid development of artificial intelligence and the significant transformation of the semiconductor industry.

Different from the "market capitalization weighted" of S&P 500, the Dow uses "price weighting", which means the price fluctuation of high-priced stocks has a greater impact on the index level than that of low-priced stocks. This mechanism makes it difficult for stocks with extremely high prices to be included in the Dow.

When Nvidia announced in May that it would split its common stock 10:1, the stock price would drop from over $1,000 to slightly over $100. At that time, some analysts pointed out that this move may be a preparation for being included in the Dow.

With Nvidia's inclusion, four of the six companies with a trillion-dollar market capitalization in the US "trillion-dollar club" have been included in the Dow's components, with Alphabet and Meta Platforms not included, while Amazon has already joined in February.

Dow knowledge

The Dow Jones Industrial Average (TheDow Jones IndustrialAverage, DJIA) was launched on May 26, 1896, one of the many Dow Jones indices published by the Dow Jones Company. The index mainly measures the price-weighted index of 30 blue-chip companies in the United States, covering all industries except transportation and utilities.

At present, the index is maintained by the Wall Street Journal's editorial department, and there are no strict standards or rules for the selection of its components, but the editorial department will focus on components that are companies with sustainable development, large size, good reputation, industry representation, and are favored by most investors.

As one of the most important stock indices in the world, it is closely followed by many fund companies and related ETF products are issued. There are 30 ETFs tracking the index announced by the Dow Jones Company alone. Domestic funds have also issued Penghua Dow Jones Industrial Average ETF.

It is expected that the companies to be included in the index will be bought by more passive index funds.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.