Dow Drops Bank of America, Welcomes Goldman Sachs

The Dow Industrial Average has gained 0.45% by midmorning today, as markets relax on the news that Syria will likely surrender its chemical weapons to avoid an air strike by the U. S.

But that tidbit will be dwarfed by an even bigger announcement earlier today -- and much closer to home: The Dow will be replacing three components of its index with three new companies, commencing with the close of the Sept. 20 trading day.

Losers, and winners
Alcoa
, Bank of America , and Hewlett-Packard will all be dropped from the Dow next week. Replacing them will be Nike, Visa , and Goldman Sachs, marking the biggest revision of the price-weighted Dow in nearly 10 years.


What's behind this change-up? An article from The Wall Street Journal earlier today noted that the group that manages the Dow, the S&P Dow Jones Indices, commented that the low share price of each of the three losers was one reason for the change, as well as a desire to diversify the index.

Bottom of the heap
The three being sent packing are the lowest, by stock-price weight, on the Dow. Alcoa is just 0.41% of the index, with B of A registering 0.74% and HP weighing in at 1.14%. By comparison, IBM is the heavyweight, comprising 9.43% of the index.

Alcoa has been on the Dow for 54 years, and always kicks off earnings season. Still, as the Journal notes, the stock price has dropped 80% since 2007, while HP, a 16-year Dow veteran, has seen its own price decrease from $50 three years ago to $22.35, as of today. Bank of America, a relative newbie on the index with just five years in, is much lower today, at $14.65, than when its shares commanded $50 apiece back in 2007 -- though much better than the $3 to $4 price tag its stock sported in March 2009.

The new kids on the block
By comparison, both sports-garb icon Nike and Goldman Sachs are up nearly 30% so far this year, and payments giant Visa has gained well over 20%. Needless to say, all three have seen gains in share value this morning, while Alcoa has stayed neutral, and HP has lost ground.

Bank of America is doing fine, up more than 1% by late morning, following reports that it plans to cut more mortgage-related jobs as that business tanks along with rising interest rates.

The changes will now place Visa and Goldman in second and third place on the index, following IBM.

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The article Dow Drops Bank of America, Welcomes Goldman Sachs originally appeared on Fool.com.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Bank of America, Goldman Sachs, Nike, and Visa. The Motley Fool owns shares of Bank of America, International Business Machines, Nike, and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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