From: technews <technews@ou.edu>
To: "'it-fyi@listserv.ou.edu'" <it-fyi@lists.ou.edu>
Subject: it-fyi: A Younger, Sexier Dow (NY Times on the Web)
Date: Sun, 31 Oct 1999 17:53:49 -0600
October 31, 1999
After Its Latest Facelift, a Younger, Sexier Dow
By FLOYD NORRIS
The Dow Jones industrial average has long been viewed as the most prominent
measure of the financial health of corporate America. Maybe now it should be
seen as a barometer of how fast the economy is changing.
Last week the keepers of the Dow -- the editors of The Wall Street Journal
-- announced plans to boot four perfectly respectable companies and replace
them with younger and better-performing substitutes. It was the third time
in the 1990's that such a thing had happened. All told, 11 of the 30 stocks
in the Dow are new in this decade.
To find any comparable rate of change one must return to the 1930's, when
the Depression-era economy was suffering a very difficult upheaval. Now Wall
Street thinks the economy is going through an upheaval with implications
every bit as great -- but much more pleasant -- for the economy.
The old economy, as reflected in the Dow industrials of 20 years ago, was
dominated by companies that made things -- steel, cars, cigarettes,
chemicals, oil and tires. The new Dow is dominated by companies in far
different lines of work.
The Dow of the 1970's had three oil companies, two steel companies, one
computer company and no financial firms. The new Dow has four
computer-related companies, three financial behemoths, just one oil company
and no steel makers. It has Walt Disney, Coca-Cola and McDonald's. But Alcoa
is still on the list, and so are General Motors and Minnesota Mining and
Manufacturing. The old America of heavy industry is still represented, but
not nearly as heavily.
One sign of the magnitude of the change is that of the four companies that
will join the Dow tomorrow, three of them -- Intel, Microsoft and Home Depot
-- can trace their corporate lineage no further back than 1968. The fourth,
SBC Communications, was spun off by AT&T (another Dow member) back in 1984
as part of the antitrust settlement that broke up Ma Bell. The companies
they replaced -- Chevron, Sears, Goodyear and Union Carbide -- all joined
the Dow in 1930 or earlier.
It's hard to underestimate the symbolic power of the Dow. Intel and
Microsoft are emblematic of American dominance in the rapidly growing
personal computer business. That image is better than the one created in
1985, when McDonald's joined the index, or in 1991, when USX, the former
U.S. Steel, was tossed out to make way for Disney. Then there was talk that
the new America meant hamburger flippers going to movies.
In announcing the changes, Paul E. Steiger, The Journal's managing editor,
spoke of making the Dow "more representative of the emerging U.S. economy."
But he also evidently wanted to stick to blue chips, companies that had
proven themselves to be successful. There are no pure Internet companies in
the Dow.
The pace of change in the Dow may reflect more than the speed of change in
the economy. After all, the economy was changing from the 1940's through the
early 1980's, even though there were few changes in the Dow during that
period that were not forced by takeovers or financial distress.
One thing that is different now is that Dow Jones & Company makes money from
fees paid every time investors buy options, futures and other securities
based on the Dow. In recent years, the index has not risen as fast as its
prime competitor, the Standard & Poor's 500, which includes 500 major
American stocks and has a very heavy dose of technology stocks and a larger
share of the market in stock index securities.
Had Intel, Microsoft, Home Depot and SBC Communications been part of the Dow
since 1997, the index would have been the better performer. Perhaps such
superior performance would have persuaded more investors to trade the Dow,
rather than the S.& P.