Dow Jones Industrial Average About To Undergo Huge Changes Adding Amgen, Honeywell and Salesforce.com

With the S&P 500 recently reaching new all-time highs and the NASDAQ having done so more than two months ago (June 5), the granddaddy of equity indices, the Dow Jones Industrial Average, has some catching up to do. Even though it has been on a roll recently, it's still 1300 points off its all-time high, or about five percent from the promised land.

So, what to do?

Need to have the Dow Jones Industrial Average make new all-time highs? No problemo, señor.

It was announced on Monday that Exxon Mobil (XOM), Raytheon (RTX), and Pfizer (PFE) would be removed from the index on August 31, replacing them with Salesforce (CRM), Amgen (AMGN), and Honeywell (HON).

This CNBC article suggests that the changes have much to do about Apple's announced 4-for-1 split, which will take the technology group within the Dow from 27.6% down to 20.3%, but there are some serious doubts as to the veracity of that argument. There's more to it than meets the usually-jaundiced investor eye, so, how do these companies stack up, by comparison?

Let's take a look.

ExxonMobil closed Tuesday at 40.82. It's 52 Week Range is 30.11 - 75.18, with those gaudy numbers in the 70s all occurring in late 2019, prior to the coronavirus scare. The stock hit a closing low of 31.45 on March 23, the culmination of a two-month long price slide. It has recovered only slightly since.

The removal of this oil and gas giant from the Dow is a serious matter, leaving Chevron (CVX) as the sole big energy producer in the index. This speaks volumes about the Dow re-arrangers' understanding of the economy. They obviously don't expect oil and gas to be doing much. With WTI crude in the $40-$45-a-barrel range in the middle of summer, one can guess they think the prospects for higher oil prices are low, since ExxonMobil's performance is tied quite tightly to the price of crude.

Another company hit hard and hardly recovered from the March crash is Raytheon (RTX), which closed Tuesday at 60.95, better than its March 23 low of 47.17, but well off its high of 98.70 on February 7. With 195,000 employees worldwide, Raytheon is a big time government contractor focused on aerospace and missile technology. Any conclusions drawn from the removal of this industrial/tech giant will likely be wrong. The managers of the S&P Dow Jones Indices - who are in charge of making these changes and keeping the Dow somewhat representative of American business - basically just swapped out Raytheon for Honeywell, which is also in the aerospace business but is much more diversified and up-to-date. It doesn't hurt that Honeywell, which closed Tuesday at 164.53, hit a high of 183.23 on January 17 and bottomed out at 103.63. It's recovery has been much swifter and stronger than that of Raytheon.

Pfizer has been a dog of the Dow for a long time and it's hardly surprising that it was finally dumped. Even though its close Tuesday at 38.41 is close to its record close at 40.71 on January 23, the low of 28.49 doesn't offer much in the way of range for this big pharma constituent. The highest price Pfizer traded at was 46.23, back in November of 2018. The company simply isn't the big performer that the Dow needs.

Now, Amgen (AMGN), that's a company with two things the Dow desperately needs: a high stock price and upward momentum. It got hit in the March selloff, but not so badly. It hit a high of 243.06 in December, 2019, dropped down to 182.24 on March 12, and has since made new highs, reaching the pinnacle at 260.95 on July 20. It closed Tuesday at 248.22, on a one-day gain of more than five percent. Amgen does basically the same things Pfizer does, but it doesn't carry legacy baggage like its rival. Amgen has 23,400 employees compared to Pfizer's 88,300. It's a mean, green, pharma machine. Taking this switcheroo into account, guess which company is not going to get government approval for a COVID-19 vaccine. Hint: it's not Amgen.

Salesforce (CRM) is the oddball of the bunch, basically replacing an energy company (XOM) with a pure tech play. The ticker symbol (CRM) is an acronym for Customer Relations Management, otherwise known in the business as data mining, or targeting. Headquartered in San Francisco, the company has 49,000 employees into everything from applications development to blockchain, the technology that powers cyrptocurrencies like BitCoin.

Salesforce closed at 216.05 Tuesday, but, get this, as of this writing, in pre-market trading, it's up nearly 15%, at 247.94, a gain of 31.94, should the advance hold through the open. The company's stock made a new all-time high on July 6, bouncing off its March low of 124.30, and has gone higher from there.

Could the swap out of ExxonMobile for Salesforce have anything to do with massive cultural changes in America and worldwide? You bet your life it does. This one huge change is telling us that society is going to be less mobile and more tech oriented, with distances of hundreds or thousands of miles which used to be traversed by planes, trains, and automobiles are largely going to be the province of video software, the internet, and broadband, a change which has been evolving for decades but is finally coming to fruition.

While Salesforce.com's surge after hours and into the pre-market had much to do with its earnings report and outlook, could the company be poised to be a big part of a digital currency offering by the Federal Reserve? It's obvious that the Fed would go looking to the private sector for a partner in the technology end of such a development and the nation's central bankers have already indicated that cyrpto is in their future, and thus, of all Americans and most of the world's population.

Even discounting that proposition, the changes to the Dow Industrials set to kick off in less than a week (Monday, August 31) are going to provide significant upside to the 124-year-old stock gauge.

At the Close, Tuesday, August 25, 2020:
Dow: 28,248.44, -60.02 (-0.21%)
NASDAQ: 11,466.47, +86.75 (+0.76%)
S&P 500: 3,443.62, +12.34 (+0.36%)
NYSE: 13,001.99, +29.11 (+0.22%)