Apple Is About To Go From The Top Dow Holding To #17

David Dierking

When Apple announced that it's planning on executing a 4-to-1 split on its stock, it's essentially giving away its outsized influence in the Dow Jones Industrial Average.

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Apple currently has a weighting of 10% in the Dow, making it the largest of the index's 30 components. The split would knock it down to around 2.5% give or take (depends on the full recomposition and how Apple's stock rallies on Thursday's earnings report).

Based on current allocations in the Dow, the new price would push Apple all the way down to around #17 in the new Dow weightings.

Is the reflective of Apple's influence in the U.S. and global economy. Of course not. Price-weighted indices have long been criticized for over- or under-weighting its components based on what's essentially an arbitrary number. A stock with a share price of $100 isn't necessarily twice as valuable as a stock with a price of $50. While the Dow is perhaps the most well-known index in the world, it isn't the most smartly constructed.

Apple will remain the #1 component in the S&P 500, Nasdaq Composite and Nasdaq 100 indices, although Microsoft is very close in all three cases and could take the top spot on any given day.

The split will impact the Dow beyond just Apple's contribution to the index. It will significantly change the sector allocation. Tech currently comprises 26% of the Dow. Using simple math, that would knock tech exposure down to below 20% overall. That still makes it the top sector holding in the Dow, but would be a notable difference compared to market-weighted indices. Tech currently accounts for about 27% of the S&P 500.

There's a history of companies refusing to split their stock prices in order to maintain their influence the Dow. IBM supposedly didn't want to split its stock back in the day when it was a top 5 Dow component. Boeing is rumored to have felt the same way recently, although its recent problems have taken care of that.


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