The Wall Street giant that continues to grind records will become a lightweight of the Dow Jones. Let’s talk about Apple and its upcoming stock split. While the overcoming of the $ 2 trillion valuation threshold is in the news and the Cupertino giant continues to attract purchases even today, it seems that the approach of Apple’s share split, as well as for Tesla, catalyze purchases even more.
The reverse stock split in a 4 to 1 ratio It will go into effect on August 31 and lower its price to around $ 122. A move aimed at making the stock more accessible to individual holders, but one that will also result in a major shift in Apple’s weight in one of the big three Wall Street indices. Nothing changes for S&P 500 and Nasdaq which are market capitalization indices, while from the end of the month Apple’s weight on the Dow Jones will change dramatically.
From its current position of dominance with a double-digit weight on the Dow Jones index, Apple will slide towards mid-table among the 30 DJ stocks at the end of the month.
The anomalous calculation methodology of the Dow Jones
In fact the prestigious index results weighted by price, which means that stocks with higher stock prices have a greater weight in the meter. Apple’s new weighting in the Dow will drop to around 3.1%, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
The leading place in the Dow Jones will be taken by UnitedHealth, currently the second largest weighting at 7.75%, followed by Home Depot with 6.94%, Microsoft with 5.31% e McDonald’s with 5.19%.
An upheaval that risks also changing the overall appeal of the index considering that over the years passive investment – through ETFs for example – has become predominant in the stock market; A drop in Apple’s weight in indices like the Dow Average is therefore likely to spur outflows from managers to other benchmarks that weight Apple stock differently. About $ 31.5 billion was indexed or compared to the Dow Jones Index at the end of 2019, according to data from the S&P Dow Jones Indices.
Big 5 domination in the S&P 500
For capitalization indices the problem is the opposite, with few stocks that risk counting very much within an index. This is the case with the current S&P 500 you see the five largest stocks (Apple, Microsoft, Amazon, Alphabet and Facebook) represent nearly a quarter of the index. This raises concerns about excessive market concentration. “We believe that the current level of concentration on the US market is nothing new, as well as being lower than what we observe in other global markets – he remarks Ben Jones, senior multi-asset strategist di State Street -. Furthermore, in periods of underperformance of larger companies and reduction of concentration, equity markets do not necessarily enter a phase of decline. In fact, there is a slightly negative relationship between the change in concentration and the performance of the index ”. By using proprietary metrics to determine the systemic nature of these stocks, State Street found that the five largest stocks currently do not carry as high a systemic risk and that these metrics have declined as stock size increases. In short, a high concentration does not necessarily translate into a decline in equity performance, therefore we believe we can eliminate this issue from possible sources of concern ”.
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