Amazon joins the US Dow Jones Industrial Average, replacing Walgreens Boots Alliance

Amazon officially joined the DJIA earlier this week

Amazon joins the US Dow Jones Industrial Average, replacing Walgreens Boots Alliance
The logo of Amazon is seen at a logistics centre in Lauwin-Planque, northern France, November 15, 2022. REUTERS/Pascal Rossignol/File Photo

The backstory: Since 1896, the US Dow Jones Industrial Average (DJIA) has been offering investors a snapshot of how the US stock market is performing. It's now an exclusive stock index with only 30 large companies, which is more selective than the S&P 500, which tracks 500 companies. These well-known companies on the Dow are also known as "blue chip stocks." What's interesting about the DJIA is how it calculates its numbers. Instead of looking at the size of a company, it's price-weighted, meaning it looks at the price of a stock to decide how much influence it has on the index. 

Technology has become a huge part of the economy in recent years, but the Dow has struggled to keep up. While some tech giants like Apple and Microsoft are in the club, others like Nvidia and Alphabet are missing. And then there's Amazon. Started by Jeff Bezos in 1994, the company has grown from selling books online to dominating e-commerce globally, even branching into cloud services, streaming and artificial intelligence (AI). But it's been excluded from the Dow Jones, instead finding its place within the S&P 500. Amazon's stock has been on fire lately, jumping over 80% in the last year and helping push the S&P 500 to record highs, while the Dow trailed a bit behind.

More recently: Last week, S&P Dow Jones Indices announced that Amazon would be joining the DJIA, replacing Walgreens Boots Alliance. This change aims to give the Dow more exposure to the retail sector. Also, Uber replaced JetBlue Airways in another index called the Dow Jones Transportation Average, which focuses on US transportation stocks.

The development: Amazon officially joined the DJIA earlier this week. This means investors betting on the Dow Jones will now have exposure to Amazon's stock. This shake-up is the first change to the DJIA since 2020, when companies like Salesforce and Amgen hopped aboard.

So, why the change? It's partly because of Walmart. The company recently split its stock three-for-one, making its shares cheaper and changing how much weight it carries in the index. This opened the door for Amazon to slip in. Amazon now takes the 17th spot among the Dow's 30 companies, while Walmart steps back to 26th place. 

Key comments:

"Reflecting the evolving nature of the American economy, this change will increase consumer retail exposure as well as other business areas in the DJIA," said S&P Dow Jones Indices.

"Amazon is almost a hybrid name. It's one of the names that falls into different categories. It in many ways exemplifies what the Dow stands for in terms of representing commerce across the United States," said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

"The NDR Tech Titans Index consists of nine mega-cap stocks," said Ned Davis Research chief U.S. strategist Ed Clissold in a note. "The addition of Amazon puts four of the nine in the DJIA. However, the DJIA is still 11.6% points underweight the Tech Titans versus the S&P 500."