A lighted sign marks the Goldman Sachs trading post on the floor of the New York Stock Exchange on Tuesday, Aug. 5, 2014.Richard Drew/The Associated Press
One of the most recognizable companies in the world is about to cement its grip on the Dow Jones Industrial Average, and it's not who you think.
While Apple Inc. entered the average Thursday, it's Goldman Sachs Group Inc. that will see its influence on the 118-year-old gauge solidified, garnering the biggest weighting after a stock split this week by Visa Inc. New York-based Goldman Sachs, with a 7.1 per cent share, will be the first bank to hold the top spot since JPMorgan Chase & Co. in 2000.
It's testament to the quirkiness of the Dow's listing structure that Apple, the world's most valuable company at $748-billion (U.S.) in market value, will take a back seat to a company that's just over one-tenth its size. Apple ranked as the ninth most-loved company in a Harris Poll earlier this year, while Goldman Sachs came in as the least loved.
"The Dow is very strangely constructed," Donald Selkin, who helps manage about $3-billion of assets as chief market strategist at National Securities Corp. in New York, said in a phone interview. "You have the company with by far the highest market capitalization as the fifth-most influential stock in the index. The Dow is not exactly made up of the companies that best show where the economy is – it's bizarre."
The index, which was created in 1896 by Dow Jones & Co. co-founder Charles Dow, is weighted based on the share prices of the 30 companies in the average. Visa's split will cut its share price by 75 per cent, leaving Goldman, which closed Thursday at $XX , with the highest price in the gauge and the biggest weighting.
Apple, which has rallied 16 per cent this year, will have the fifth-highest weighting at 4.7 per cent. The company accounts for 15 per cent of the Nasdaq 100 Index and 4 per cent of the S&P 500. Both rank members by market value. The technology gauge has advanced 4.6 per cent in 2015, while the Dow has added 1 per cent.
Visa accounted for more than 9 per cent of the Dow before its split, which will cut the share price to about $67 and bump it down to 21st place behind DuPont Co.
Goldman's promotion will damp price swings, all else being equal. Trailing 20-day volatility for the shares has averaged 17.82 per cent in the past year, compared with Visa's 19.40 per cent.
A 1 per cent rise in Goldman Sachs shares would add 12 points to the Dow at current levels, while the same move in Apple would provide an 8-point boost, according to data compiled by Bloomberg.
Leslie Shribman, a spokeswoman for Goldman Sachs, declined to comment.
Goldman Sachs and Visa both entered the Dow in September 2013, when the average was last reshuffled. Along with Nike Inc., they replaced Bank of America Corp., Hewlett-Packard Co. and Alcoa Inc. Visa has rallied 35 per cent since it joined on Sept. 20, 2013, while Goldman Sachs gained 13 per cent, compared with Dow's 17 per cent advance.