Apple Inc (NASDAQ:AAPL), the largest U.S. company by market value, will join the Dow Jones industrial average <.DJI>, replacing AT&T Inc (NYSE:T), in a change that reflects the dominant position of the iPhone maker in the U.S. economy and society.
Continue Reading Below
The decision to nudge aside AT&T, which has been part of the Dow for the better part of a century, is a recognition of the way in which communications and technology have evolved over the last several decades.
"This is a sign of the times, and it might get everyone to look at the Dow more than they have been," said Richard Sichel, who oversees $2 billion as chief investment officer at Philadelphia Trust Co.
"It would be difficult to pick any 30 companies that would cover the entire economy, especially compared with the S&P 500, but it does give the Dow more credibility."
The action, by S&P Dow Jones Indices, had been widely expected since Apple split its shares seven-for-one in June of last year.
After the split, many investors felt it was only a matter of time before the iPad maker would be added to the 30-stock average, since its high stock price had previously made it unsuitable for the price-weighted index.
The Dow industrials is the oldest U.S. stock average, first been published in 1896. Its compact size - just 30 names - and its mission to reflect the U.S. economy mean it has a familiarity for retail investors that other indexes that cover a greater portion of the market's value do not.
Even though professional managers generally benchmark against the S&P 500, additions and removals from the Dow are still a big event. It was last altered in September 2013 when Goldman Sachs Group Inc
Apple, which has a market capitalization of $736 billion, did not respond to requests for comment.
AT&T declined to comment on its removal from the average. The company, which has a market value of $176.5 billion, has spent most of the last 100 years in the Dow. Its deletion from the index leaves Verizon as the sole telecommunications company in the average.
AT&T was added in 1916, the year after the first-ever transcontinental telephone call. It was removed in 2004. After SBC Communications renamed itself AT&T following a 2005 merger, it was reinstated.
"It was a new way of life: telephones, back then 100 years ago, these talking machines," said Howard Silverblatt, index analyst at S&P Dow Jones Indices.
In a twist of fate, Apple owes some of its success to its partnership with AT&T over the iPhone, the device that propelled Apple's dominance. The iPhone first hit the market in 2007 with AT&T as its exclusive carrier, a deal that continued for more than three years.
Since the iPhone's introduction, Apple's annual revenue has risen more than sevenfold, from $24.6 billion in 2007 to $182.8 billion most recently. AT&T has not seen the same kind of growth. Its revenue in 2014 was $132.4 billion, up 11 percent from $118.9 billion in 2007.
"There’s irony in that they are replacing AT&T, which helped them lift off to begin with,” said Neil Azous, founder of Stamford, Connecticut-based advisory firm Rareview Macro.
Despite Apple's size, it would as of Thursday's close only have a 4.66 percent weighting in the Dow because of its price, the index company said in a statement. Apple will join the average after the close of trading on March 18.
Shares of Apple rose 0.5 percent to $127.07 on Friday, while those of AT&T fell 1.4 percent to $33.52.
Had Apple had replaced any one of the 30 Dow components except Visa
Most of the assets indexed to the Dow industrials are through the S&P Dow Jones Industrials exchange-traded fund
Kevin Landis, chief investment officer of Firsthand Capital Management, a Silicon Valley-based technology-investing specialist with $300 million in assets under management, said he hopes that this is not a sign that Apple is past its prime.
“The Dow Jones is such a backwards-looking list, I cringed when Intel
Intel and Microsoft joined the average in November 1999, and their performance was weak for years following.
(Reporting by David Gaffen; additional reporting by Jonathan Spicer, Jessica Toonkel and Ryan Vlastelica; Editing by Dan Burns, Bernadette Baum and Steve Orlofsky)