Investing

Can Amazon Save the Dow?

Douglas A. McIntyre

Published: February 27, 2024 6:45 am

Amazon.com Inc. (NASDAQ: AMZN) is up 80% in the past year. If that continues, it might help the Dow Jones industrial average, a group it just joined. Amazon replaced Walgreens Boots Alliance Inc. (NASDAQ: WBA). Dow stocks tend to be “old economy” stocks. Maybe that is why it has risen only 19% in the past year, while the S&P 500, dominated by mega-cap tech shares, is up 28%. It included every major tech company. The Dow includes only Apple Inc. (NASDAQ: AAPL), Salesforce Inc. (NYSE: CRM), Microsoft Corp. (NASDAQ: MSFT), and Intel Corp. (NASDAQ: INTC). But Salesforce is not a major tech company, and Intel fell off the list of successful tech stocks over two years ago. It is a wonder the two companies are on the list instead of Alphabet Inc. (NASDAQ: GOOGL) or Nvidia Corp. (NASDAQ: NVDA).

Among the 30 components of the Dow are companies over a century old and many have not contributed to the stock market’s rise or fall for decades. Old world conglomerate 3M Co. (NYSE: MMM) has a market cap of $50 billion. Earthmover company Caterpillar Inc. (NYSE: CAT) is part of the disappearing age of combustion engines. Its market cap is $125 billion, a tiny fraction of companies like Microsoft and Nvidia. International Business Machines Corp. (NYSE: IBM) is also one of the Dow stocks. It fell into tech obscurity decades ago. Its market cap is $168 billion. (See which 25 American industries are booming.)

Ned Davis Research Chief U.S. Strategist Ed Clissold told CNBC, “Adding a Tech Titan could help keep the most widely known equity benchmark relatable to investors.” However, that is not the answer. Why have a significant index with too few major companies? The group that decides on the 30 Dow stocks has driven it into obscurity.