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Apple is no longer king of the Dow. Meet tech's new leader

August 31, 2020. Summarized by summa-bot.

People sit inside in the Salesforce Tower in New York, U.S., on Thursday, May 30, 2019. Salesforce.com Inc. is scheduled to release earnings figures on June 4. Photographer: Victor J. Blue/Bloomberg via Getty Images

Meet the new tech king of the Dow: Salesforce. The software company, which debuted in the Dow on Monday, is now the index's third-largest holding.

It's all because the Dow, unlike the S&P 500 and many other indexes, ranks its holdings by share price and not market value.

It's been this way since Charles Dow first founded a predecessor to the modern Dow Jones Industrial Average in 1885 -- when there were only 12 stocks in it instead of 30 and prices mattered more than market value.

Salesforce is one of three new Dow companies joining the index on Monday, along with biotech Amgen (AMGN) and industrial conglomerate Honeywell (HON).

Apple, which just completed a stock split to lower its stock price, was the previous top-weighted component in the Dow. But now that shares trade for just $128, Apple has gone from being the biggest Dow weighting all the way down to only 17th largest, slightly ahead of IBM and just behind Disney (DIS).

And since Amazon and Alphabet both have stock prices in the quadruple digits, there is no way they could have been added to the Dow unless they too split their stocks.

A spokesman for S&P Dow Jones Indices told CNN Business that potential Dow replacements also need to "command a reasonable weight based on its stock price. "

The spokesman added that any time changes are made to the Dow, "many factors are considered including trying to represent the broad swath of sectors and sub industry groups" among larger stocks.

But Howard Silverblatt, senior index analyst for S&P Dow Jones Indices, noted the addition of Salesforce will allow the Dow to maintain a nearly 25% weighting to pure tech stocks.

But if the Dow is supposed to reflect the market, investors might wonder: Then why not add Facebook (FB)?

But what most ordinary investors consider to be tech companies are viewed as "communications services" firms by the folks who manage the Dow. That includes Facebook.

Although Facebook (warts and all) may be a more relevant part of the US economy, adding it to the Dow would arguably give the Dow too much exposure to "communications" as the index already has Verizon (VZ) and Disney representing that sector.

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