Mon September 24, 2012
The Last Word In Business
Originally published on Mon September 24, 2012 10:10 am
STEVE INSKEEP, HOST:
The Dow Jones industrial average may be the most famous barometer of stock market sentiment. It's not a broad measure. Only 30 stocks are in the Dow and this elite group of big blue chip companies supposedly represents the health of the U.S. economy. So, it is noteworthy when a company is kicked off the Dow or allowed in.
DAVID GREENE, HOST:
Which is why our last word in business today is: packaged food out, health care in. Starting today, Kraft Foods is no longer in the Dow. It has been replaced by health care company UnitedHealth.
INSKEEP: The people who run the average said the swap was prompted by Kraft's decision to spin off part of its business. So the move makes the company too small to stay in.
RICHARD SYLLA: I think it is a demotion in a way.
GREENE: Richard Sylla is a historian at New York University's Stern School of Business.
SYLLA: You know, they will be followed less by Wall Street and investors because they're not in the Dow. People do follow the Dow. There's some people try to buy the cheaper Dow stocks every year called Dogs of the Dow and that's supposedly an investment strategy. So if you're not in the Dow you're not as well-known and famous as if you are in the Dow.
GREENE: Being in the Dow will presumably give UnitedHealth some new prestige, maybe a short-term bump in its stock price, but broadly, Sylla says it's hard to gauge how much it matters when companies enter and leave the Dow.
SYLLA: Most of the famous companies of American history have been in there at one time or another. When a company like General Motors got into trouble it was taken out of the Dow. An odd thing about the Dow now is that, you know, automobiles, they're still pretty important in the American but there's no automobile company in the Dow at this point.
INSKEEP: Now if the makeup of the Dow seems random, remember that this indicator is put together by humans. Another big company they've decided not to include - Apple. Industrial strength news on MORNING EDITION from NPR News. I'm Steve Inskeep.
GREENE: And I'm David Greene. Transcript provided by NPR, Copyright National Public Radio.