Saturday, September 14, 2013

Stock Market: Dow Jones I - Mirror Of Changing Times

(Drivebycuriosity) - "The times they are a-changin," Bob Dylan told us in his song from 1963 (bobdylan). The master was right, the world around us has been changing all the time.

The Dow Jones Average, the most popular stock barometer of the world, has been responding to the continuous changes since its start. According to Wikipedia the components of the DJIA have changed 53 times in its 128-year history (wikipedia). Last week the owner of the barometer, S&P Dow Jones Indices, announced their latest revamp. 3 stocks are getting kicked out: Alcoa, Hewlett-Packard & Bank of America (cnbc). They get replaced by Nike, Visa and Goldman Sachs.

Alcoa, the world`s 3rd largest producer of aluminum and aluminum products, is an icon of the industrial era and has been a Dow member for 54 years. But the once bellwether has fallen into mediocrity. The industrial sector has been shrinking for decades. Now manufacturing participates just with around 20% in the whole economy which is more and more dominated by the service sector. Therefore the material supplier doesn`t represent the economy of the 21st century any more.

Hewlett-Packard is another victim of the changing times. The Internet is gaining importance rapidly and it is eating many empires of the 20th century. The technology giant is now a fossil because their PCs and printers are getting replaced by smartphones and tablets.

The decision against Bank of America is less clear. The multinational banking corporation is still a financial giant thanks to its broad spectrum of financial services and tight network of branches across the U.S. But it seems that its successor Goldman Sachs is more fashionable. The controversial Wall Street firm impresses with their fast growing profits stemming from aggressive investment banking (including mergers & acquisitions) and very lucrative commodity trades. 

The newcomer Nike, a producer of fashionable sneakers & sports accessoires, stands for conspicuous consumption (wikipedia). The multinational consumer company benefits from a globally rising affluent middle-class which is spending more & more money for fancy outfits.

Visa, supplier of credit card and other payments services, gains from the fast growing needs for national & global financial transfers. But the financial service provider is already challenged by new technologies like payments by smartphones and alternative payment systems like PayPal.

Future will tell if the Dow Jones owners made the right decision. At least in the last 30 years they did a good job. Since 1980 the Dow is up 1,759% , while the S&P 500 -- which is regarded as the gold standard of the U.S. stock market -- is up 1,497% (bespokeinvest).

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