Alcoa, HP, Bank of America bumped from Dow index

Alcoa, Hewlett-Packard and Bank of America are losing their official blue-chip status: all three are being dropped from the Dow Jones Industrial Average, the index owner announced Tuesday. Their status as leaders of their respective industries diminished, the three are to be replaced by investment bank Goldman Sachs, credit card issuer Visa and athletic wear giant Nike, S&P Dow Jones Indices said. The changes, to take place on September 23, "were prompted by the low stock price of the three companies slated for removal and the Index Committee's desire to diversify the sector and industry group representation of the Index," S&P Dow Jones Indices said. Comprised of 30 top US companies, the Dow Jones Industrial Average has been one of the leading measures of the health of US stocks and somewhat of a proxy indicator for the US economy since it was created in 1896. It is a quotient of the cumulative price of all the shares in the index, and thus can be heavily shaped buy the companies whose prices soar and sink out of line with the rest. The index owner periodically changes its membership to reflect both the evolution of US industry and the health of member companies. But David Blitzer, managing director at S&P Dow Jones Indices, stressed that the main reason for dropping the three was that the share prices of Alcoa, Hewlett-Packard and Bank of America had languished at too-low levels for too long, and were weighing down the overall index. "Changing the stocks in an index is not an investment recommendation," he added in a conference call. "It is done to improve the index, to make it a better representation of the market overall." "There is no intention to pick winners." The company stressed the changes will not affect the level of the index and how it reflects the overall market for US stocks, though Blitzer said some short-term minor distortions could take place as investors who focus on the index adjust their portfolios. "There is always a bit of transitory trading," he said. In early trade in a rising market Tuesday Nike shares were up 2.0 percent, Goldman added 3.2 percent and Visa 2.0 percent, while Alcoa gained 0.2 percent, Bank of America added 0.8 percent and Hewlett-Packard slipped 0.5 percent. Even as it highlights the prominence and success of its members, the Dow does not include some of the largest and most successful US companies, such as Apple, Google or the revitalized General Motors, which was included before the financial crisis sent it into bankruptcy restructuring. Blitzer explained that putting a company like Google into the index would distort it, because its share price is too high, at the current $886 a share. As for General Motors and Ford, he said, "We are keeping an eye on them, but there is no way to tell when they will drive into the index." The Dow set a record high of 15,658.36 on August 2, and has slipped since then. In early trade Tuesday the index was at 15,155.03, up 0.6 percent for the day and 15.7 percent for the year.