An Index for the Information Age - TheStreet

An Index for the Information Age

Wall Street applauds the changes to the Dow, but some question SBC's inclusion. Plus, conspiracy theorists are abuzz about what the changes might <I>really</I> mean.
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DJIA Facial, Manicure and Pedicure

SAN FRANCISCO -- Judging by

today's action (or lack thereof), it seems

last night's prediction that trading would be somewhat subdued before Thursday's key economic reports was prescient. Yet there was plenty happening on Wall Street Tuesday. Thank heaven for the news cycle.

It's a rare day when the announcement that former



Robert Rubin

is joining


(C) - Get Report

can be upstaged, but the changes to the

Dow Jones Industrial Average

certainly usurped that development.

In case you weren't

paying attention,

Dow Jones


announced that


(MSFT) - Get Report



(INTC) - Get Report


Home Depot

(HD) - Get Report

, and

SBC Communications


will be added to the venerable index, effective Monday. Simultaneously,





(S) - Get Report


Union Carbide


, and

Goodyear Tire

(GT) - Get Report

will be removed from the average.

The changes were largely applauded by Wall Street, which has been complaining the Dow has lacked sufficient exposure to the technology sector.

"Fantastic" is how Erik Gustafson, mutual fund manger at

Stein Roe & Farnham

-- which has long positions in Microsoft and Home Depot -- described the news. "This move should have happened a long time ago. Dow Jones is finally coming into the modern era

and recognizes that technology companies have really moved to the forefront in our information age economy."

I asked John Prestbo, editor of Dow Jones Indexes, about that very issue back in

March and his reply was interesting. So much so, I'm republishing it:

"I believe the Dow is reflective of the role technology has in the economy, but not -- I will agree -- of the role technology has in the marketplace, where it is the hottest thing since sliced bread," Prestbo said. "But when Wall Street talks about technology, they're almost always talking about computers. The tech sector really includes a much broader array of products and services. When I look at Boeing (BA) - Get Report I don't see a can-manufacturing plant. I see a company that tries to manage technology and turn it into hardware. It's the same thing at 3M (MMM) - Get Report."

I was unable to reach Prestbo today, who was probably deluged with calls and getting prepped for his appearance on

Business Center

. But Dick Tofel, vice president of corporate communications at Dow Jones, said today's decision does not suggest a change from that outlook.

"I think we would still regard that as right," Tofel said of Prestbo's earlier comments. "When you do a review of the 30 stocks as a whole, you look at trends in the economy.

The Dow is always a moving target -- it has to be because the economy changes. These changes seemed appropriate."

The spokesman also denied claims by some that Dow Jones decided to add tech giants Intel and Microsoft because of the

S&P 500's

dominance as the index by which fund managers are measured. Not to mention the outperformance of the

Nasdaq Composite

in recent years, including this one.

"If you look back at the reaction to 'Dow 10,000' six months ago, I don't think anyone could say the average is becoming less relevant," he said. "We think the Dow Jones Industrial Average had been and will continue to be the best and best recognized benchmark of the broader economy and broader markets."

So there!

But I Liked Your Hair Before

The catalyst for today's change included the


(XON) - Get Report







spinoff plans, and

Union Carbide's


planned merger with

Dow Chemical

(DOW) - Get Report


Forced to examine those stock-specific issues, Dow Jones took the opportunity to review the "whole 30," the spokesman said.

Prior to today, the last change to the average occurred in March 1997, when H-P,

Johnson & Johnson

(JNJ) - Get Report



(WMT) - Get Report


Travelers Group

(now Citigroup) were added. Prior to that, the last change was in 1991, when

J.P. Morgan

(JPM) - Get Report



(DIS) - Get Report



(CAT) - Get Report

were added, according to Jim Hyatt, statistics editor at Dow Jones.

"But I think it's a reach to assume we're on some kind of a more frequent revision schedule," Hyatt said.

"We never comment on future changes in the industrial average," Tofel added.

Meanwhile, market players were curious about the inclusion of SBC in the blue-chip proxy. After today's 3% rise, the stock is still down 11.5% year to date and will instantly join the

Dogs of the Dow .

"It is a little strange," Gustafson said, suggesting

MCI WorldCom


would have been a better choice. "I don't know the rationale. Maybe they think SBC is going to be the dynamic telco. I have my great doubts about any telco being dynamic. SBC is probably ahead of the rest, but these are still largely bureaucratic organizations that don't respond well to new circumstances."

Finally, conspiracy theorists (vs. Dow Theorists) were abuzz about whether Dow Jones made these changes to prevent the index from dipping any closer to the hallowed 10,000 level.

Taking that strain of thought a bit further, this is the first change in the Dow since Dow Jones entered into a partnership with


(an alliance some feel is unholy). That Dow Jones chose to include

Nasdaq Stock Market

-traded stocks in the index for the first time has cynics wondering if tech-stock-happy


penchant to foster the bull market (or at least, the illusion thereof) hasn't rubbed off on Dow Jones.



, I'm just kidding.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at