Economic Transformation Pushes DJIA Changes

Dow Jones (DJ Quote - Cramer on DJ - Stock Picks) today shook market watchers as it moved to shake up its widely watched Dow Jones Industrial Average. Starting Monday, four stocks, including tech juggernauts Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks) and Intel (INTC Quote - Cramer on INTC - Stock Picks), will replace a foursome that includes some of the best-known names in American business.

Analysts and fund managers said the move acknowledges an ongoing economic shift toward the technology, telecommunications and service industries and away from basic industries such as manufacturing and energy. The move also marks a departure from the index's exclusive reliance on Big Board stocks.

Joining the index along with Microsoft and Intel are do-it-yourself retailer Home Depot (HD Quote - Cramer on HD - Stock Picks) and telecom concern SBC Communications (SBC Quote - Cramer on SBC - Stock Picks). Leaving the index are Chevron (CHV Quote - Cramer on CHV - Stock Picks), Goodyear (GT Quote - Cramer on GT - Stock Picks), Sears (S Quote - Cramer on S - Stock Picks) and Union Carbide (UK Quote - Cramer on UK - Stock Picks), some of which have been in the index for as long as seven decades.

"Today's changes in the Dow Jones Industrial Average represent a streamlining of its components on a sectoral basis, and are the culmination of a comprehensive review of the 30 stocks we undertook over the last several months," said John A. Prestbo, editor at the Dow Jones Indexes and markets editor of The Wall Street Journal.

Shares for the four new stocks rose, while stocks for the companies to be removed slipped. Microsoft rose 2 3/16 to 94 5/8, Intel rose 2 1/2 to 73 1/4, SBC added 1 5/8 to 47 7/8 and Home Depot rose 1 7/8 to 73 13/16. Meanwhile, Chevron fell 2 7/8 to 87 1/8, Sears dropped 1 11/16 to 27 3/16, Goodyear fell 2 5/8 and Union Carbide declined 3/16 to 59 5/16.

Hugh Johnson, chief investment officer at First Albany, said "pressure has been mounting" because The Wall Street Journal's editors "were resoundingly criticized the last time they made changes by adding companies that didn't more broadly reflect the changing economy."

Now, "they are taking some positive steps to more accurately reflect that shift," Johnson added.

Johnson added that the index -- first created in 1896, then comprising 12 companies -- is "a running history" of the U.S. economy. The removal of the four companies is a signal that "a company like Sears likely becomes less important in the U.S. economy."

Scott Bleier, the chief investment officer for Prime Charter, read a little deeper into the news. By adding Microsoft and Intel, the index will include companies traded on the Nasdaq for the first time. Previously, all Dow stocks were listed on the New York Stock Exchange.

"Everything is going electronic," Bleier said. "This is a more than symbolic first step. There's a lot of entrenched bureaucracy and a lot of old interests at state, but this is the first major step to make a seamless market in the United States."

More than anything, though, the news seemed to catch Wall Street by surprise. Johnson said he hadn't spoken with anyone who had expected the announcement. But neither Johnson nor Bleier heard people moaning about the switch.

"It's progress -- it's change," Bleier said. "It's what it's all about. Change has to happen. It scares people, but it has to happen."

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For more discussion of the new Dow, don't miss our TV show this weekend on Fox News Channel. This week's guest is Charles Carlson, manager of the Strong (SDOWX Quote - Cramer on SDOWX - Stock Picks)Dow 30 Value fund. The show is scheduled to air at 10 a.m. and 6 p.m. ET Saturdays, and at 10 a.m. ET Sundays.