Dow Jones Index Changes and Walmart’s Stock Split

The Dow Jones Industrial Average is set for changes as the keepers of the renowned index gear up to tweak its components next week. Additionally, there is a high likelihood of multiple adjustments being made to the index.

Walmart’s Stock Split Effect

S&P Dow Jones Indices is scheduled to modify the Dow DJIA on Feb. 26, coinciding with the implementation of Walmart Inc.’s significant three-for-one stock split. Prior to this split, Walmart held the position of the 17th largest component within the Dow. Following the split, Walmart’s stock price will decrease by two-thirds, thereby diminishing its impact on the Dow due to the price-weighted nature of the index.

Impact on Consumer-Staples Sector

As a constituent of the consumer-staples sector, Walmart’s influence on the Dow’s price will notably decrease. Unlike the Dow, the S&P 500 index employs a market-capitalization weighting system, where a company’s market value dictates its impact on the index’s price.

Adjustment in Divisor

With Walmart’s stock split coming into effect after the Feb. 26 opening, the divisor used to calculate stock price changes within the Dow will need to be adjusted. The existing divisor stands at 0.15172752595384, with its last modification dating back to Aug. 31, 2020, following Apple Inc.’s four-for-one split.

Previous Changes and Diversification

During Apple’s split announcement in 2020, three additional alterations were made to the Dow’s components. These adjustments aimed to counterbalance Apple’s reduced influence and enhance diversification within the index for a more accurate reflection of the American economy.

Exploring Sector Weightings in the Stock Market

As of Jan. 31, the consumer-staples sector had a 7% weighting in the Dow and a 6.1% weighting in the S&P 500, so a diminished representation of that sector with a lower Walmart stock price wouldn’t put the weightings out of whack.

Sector Discrepancies in the Dow and S&P 500

The Dow’s keepers are famously tight-lipped about if, when and what kind of changes might be made. But these are the sectors with the biggest differences in weightings between the Dow and the S&P 500 as of Jan. 31 (the Dow doesn’t include transportation or utility companies and currently doesn’t include any real-estate investment trusts):

Information Technology

Information technology XLK had a 19.7% weighting in the Dow and a 29.5% weighting in the S&P 500. Some of the largest IT-sector components by market capitalization that aren’t in the Dow are Nvidia Corp., Broadcom Inc., and Oracle Corp.

Financial Sector

The financial sector XLF had a 21.5% weighting in the Dow and a 13.1% weighting in the S&P 500. The Dow’s current financial components are Goldman Sachs Group Inc., Visa Inc., Travelers Cos., JPMorgan Chase & Co., and American Express Co. Warren Buffett’s Berkshire Hathaway Inc. is the financial stock with the biggest market cap that is not in the Dow.

Communications Services Sector

The communications services sector XLC had a 2.4% weighting in the Dow but an 8.9% weighting in the S&P 500. Some of the largest companies by market cap that aren’t in the Dow are Alphabet Inc., Meta Platforms Inc., and Netflix Inc.