In a long-awaited move, the iPhone maker will replace AT&T, the phone company, at the end of trading on 18 March in the Dow’s first reshuffle for 18 months.
Joining the Dow is the latest milestone for Apple, which recorded the biggest quarterly profit in corporate history in the final three months of 2014. The company sold a record 74.4m iPhones after introducing the larger iPhone 6 and its $18bn of sales smashed forecasts. On Monday it is due to unveil its Apple Watch at an event in San Francisco.
Apple’s entry also demonstrates the increasing dominance of technology companies in the US. AT&T had been in the Dow for almost 100 years and its ejection will leave Verizon as the only telecommunications company in the index.
Apple will sit alongside Microsoft and Intel, which joined in 1999 to acknowledge the technology boom taking place then. However, Google, the second-most valuable US company, remains outside the Dow.
David Blitzer, chairman of the index committee at S&P Dow Jones Indices, which owns the Dow, said: “As the largest corporation in the world and a leader in technology, Apple is the clear choice for the Dow Jones Industrial Average.”
Apple last month became the first US company with a market value of more than $700bn and is now worth about $730bn, but in the late 1990s the company was loss-making and in the doldrums. The iMac computer and the iPod, both introduced after the return of Steve Jobs as chief executive, put it back on the innovation path.
Apple’s entry to the 119-year-old index has been delayed because the company’s high share price threatened to distort the 30-company index.
The Dow’s price-weighted system, devised in 1896, links a company’s influence on the index to its share price, even though the price of a share does not indicate the overall market value of the company.
The system had been an obstacle to Apple joining the index but its seven-for-one share split last year allayed concerns that the company’s share price, then above $600, would skew the index.
The stock split increased the number of shares in circulation but did not affect Apple’s market value. The effect was to bring the company’s share price closer to the median level in the Dow.
Unlike the UK’s FTSE 100, which comprises the companies with the highest stock market valuations, the Dow’s members are chosen by a committee of Wall Street Journal editors and S&P Dow Jones representatives.
Criteria include whether the company is of interest to lots of investors and whether it has a record of sustained growth. At the last rejig in September 2013, Goldman Sachs, Nike, and Visa replaced Alcoa, Bank of America, and Hewlett-Packard.
The Dow faces frequent criticism for being arbitrarily selected and unrepresentative of the US economy. The S&P 500, comprising the biggest US companies by market value, is regarded by many as a more accurate barometer of the US economy but the Dow retains its influence despite its quirks.
Apple shares rose as much as 2.2% to $129.22 on Friday. Companies’ shares typically rise soon after their membership of the Dow is announced but the effect is usually shortlived.
Laith Khalaf, an analyst at stockbroker Hargreaves Lansdown, said: “The Dow Jones is one of the most recognised indices in the world and is steeped in history, but its construction is a bit shonky by today’s standards. Stocks with the highest price have a bigger say in its movements, which doesn’t make a great deal of sense.
“At the margins there may be one or two passive funds that track the Dow which may now have to buy Apple, but they are small fry.”
This article was written by Sean Farrell, for theguardian.com on Friday 6th March 2015 18.01 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010