Alphabet stock is finally joining the Dow. What took so long?
Tech giant Alphabet joins the Dow Jones Industrial Average today, taking the spot previously occupied by Verizon.
I know what you're probably wondering: How the heck is Alphabet not in there already? And honestly, fair question.
Market cynics — not unfairly — will tell you it's because the Dow has always been late to the party, especially when it comes to the market's shift toward tech. Sure, Microsoft, Apple, Amazon, and Nvidia are already in the index. But each was added only after its importance to the market had become impossible to ignore.
Regardless of your thoughts on the Dow's freshness, there's no denying that Alphabet's addition represents a broader shift away from traditional blue chips, towards AI-driven tech. The index is simply catching up to a force that's taken investing by storm. Better late than never.
So what else should you know about the addition of Alphabet, which is currently the second-most-valuable company in the world, with a market cap north of $4 trillion? How will it impact you and the investing landscape at large? First Trade has you covered.
While the S&P 500 is a market-cap-weighted index, the Dow weights by share price. This means that — at $337.39 a share, as of Friday's close — Alphabet will be the sixth-biggest weight in the Dow, despite being the second-biggest company on earth.
It will make up 4% of the Dow, compared to a 6% share of the S&P 500, which has roughly 17 times more companies. Alphabet also accounts for 8% of the tech-heavy Nasdaq 100.
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Alphabet's relatively muted sway over the index could end up being a blessing. After all, the market already has the tech-heavy Nasdaq 100, which regularly whipsaws with the latest whims of AI investors.
Stocks that get added to the S&P 500 or Nasdaq immediately enter a new reality. There are so many funds and investment vehicles linked to the indexes — and the flows of money are so pronounced — that share prices feel a direct and meaningful impact.
The Dow, on the other hand, doesn't have quite the same impact on stock prices. That's because there's only one ETF — the SPDR Dow Jones ETF (DIA) — that tracks the Dow. Its market value is about $45 billion, compared to nearly $3 trillion invested in S&P funds.
This is where the cynicism comes back into play. If the Dow finally deems an investment theme like AI to be so integral to the market that it's worthy of a shift, does that mean it's already jumped the shark?
That's actually an argument that's been put forth. And while it's certainly not an exact science, there is a long history of investors viewing the Dow as a lagging indicator of where the market has already been — not necessarily where it's headed next.
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