Business, Economics and Jobs

Dow Jones index drops Bank of America, Alcoa and HP in shakeup


An electronic billboard shows a graph of trading throughout the day and the Dow Jones Industrial Average figures just after the closing bell at the New York Stock Exchange August 8, 2011.



Three companies on the Dow Jones Industrial Average index will get the pink slip next week.

The 30-member stock index is to drop Bank of America, Alcoa and Hewlett-Packard in its biggest shakeup in a decade.

Alcoa will lose the spot its held in the blue-chip benchmark for 54 years and to athletic gear maker Nike Inc.

Visa will take over for H-P and financial firm Goldman Sachs will replace Bank of America.

In a statement, S&P Dow Jones Indices said low stock prices were partially to blame for the companies removal from the index.

The Index Committee also said it wanted to diversify the sector and the types of industries represented.

"That will make the Dow a better index, a better measure of what’s going on in the market," committee chairman David Blitzer said.

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The Dow Jones is considered the "Main Street" view of how well the stock market is performing, but is less significant than the broader Standard & Poor's 500, which institutions use as a benchmark.

It's price weighted, which means the higher a company's stock price the more influential it is on the index.

Others indexes such as the S&P 500 are weighted by components' overall market value.

"When you go out to the bar at night, or you go home and you say, 'What did the stock market do today?' the majority of people will go, 'Oh, the Dow was up 50 points, or the Dow jumped 300 points,'" Dan Greenhaus, chief global strategist at New York brokerage BTIG LLC told the Wall Street Journal.

"It's the number that most people, when they think of the stock market, refer to."

The changes are set to take effect at the opening bell on Sept. 23.