26 August 2020

Apple Stock Split Triggers Major Shuffle in Dow

Tags

News shaping
the markets today

     

What’s happening: The Dow Jones index is set for some major changes at the end of this month.

What happened: The major shuffle in the Dow Jones Industrial Average will comprise of three stocks being swapped, in a bid to rebalance the 30-stock index to include more tech names.

The replacements, effective from August 31, were announced after a massive rally in Apple’s shares on the news of a 1:4 stock split.

What were the changes: The S&P Dow Jones Indices, which manages the Dow Jones index, announced three new stocks.

  • Cloud-based CRM software firm Salesforce.com will replace oil giant Exxon Mobil.
  • Industrial company Honeywell International will be added to the index in place of defence contractor Raytheon Technologies.
  • Pharmaceutical major Pfizer would be replaced by biotech company Amgen.

Why it matters: Apple made an entry into the Dow Jones in 2015 and is now the most influential company in the index. The iPhone major announced a 1:4 stock split on Friday, after its market capitalisation surpassed $2 trillion. Apple’s decision to split its stock will bring down the tech sector’s weightage in the Down Jones, which has led to the announced changes in the index.

The S&P Dow Jones said it hopes the changes will offset the expected decline in the index due to the Apple split, adding that the move will “help diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy.”

Following the reshuffle, Apple will slide to the 17th position in the 30-stock index from its earlier rank of #1. UnitedHealth Group will take the top position in the index, when the shuffle takes effect on August 31.

The only time the Dow Jones announced such a major shake-up was in 2004, when Pfizer, Verizon Communications and American International Group entered the index.

How shares responded: Shares of the three new entrants spiked on Tuesday, with Salesforce climbing 3.6% to close at $216.05, Amgen surging 5.4% to $248.22 and Honeywell gaining 3.2% to settle at $164.53. Meanwhile, shares of the three outgoing companies slipped in the previous session, with Exxon Mobil down 3.17%, Pfizer losing 1.10% and Raytheon Technologies declining by 1.50%.

What to watch: The S&P Dow Jones said a new divisor will be used to calculate the index. Investors are hoping for a smooth transition on August 31.

The Markets Today

     

Crude oil will be in focus today, ahead of the EIA’s (Energy Information Administration) report on crude oil stockpiles.

Context: Oil futures closed at their highest level since early March, with tropical storms forcing the closure of more than 80% of crude production in the major Gulf of Mexico region.

Details: The tropical storm Marco was downgraded to a cyclone on Tuesday, while Laura’s status was upgraded to a hurricane, which is likely to make a landfall on the country’s Gulf Coast later during the week.

The Interior Department’s Bureau of Safety and Environmental Enforcement projected that the storms resulted in the shutdown of 84.3% of offshore crude oil production and 61% of natural gas production in the key Gulf of Mexico area.

WTI (West Texas Intermediate) crude for October delivery climbed 1.7% to close at $43.35 per barrel on the NYMEX (New York Mercantile Exchange), reaching its highest level since March 5.

October Brent crude surged 1.6% to reach $45.86 per barrel on ICE Futures Europe, also settling at its highest level in more than five months.

In response to the storms, gasoline prices hit their highest level since March 5, while September gasoline gained 2.1% to reach $1.3959 a gallon on Tuesday.

Late Tuesday, the American Petroleum Institute reported a decline of 4.5 million barrels in US crude supplies for the week ending August 21.

What to watch: Investors await weekly data on US petroleum supplies by the EIA. Crude supplies are expected to decline by 4.3 million barrels in the week ending August 21. Analysts expect gasoline supplies to decline 2.7 million barrels, while distillates supplies are likely to contract by 700,000 barrels last week.

Markets will continue to monitor the covid-19 numbers, with total cases surging past 23.8 million globally.

Other Markets: US indices trading closed mostly higher on Tuesday, with the S&P 500 and Nasdaq 100 up by 0.36% and 0.76%, respectively, while the Dow Jones index slipped 0.21%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

France’s consumer confidence and initial jobless claims, South Africa’s inflation rate, Mexico’s GDP growth rate and index of economic activity as well as the US MBA mortgage applications and durable goods orders.

ADS Securities London Limited “ADSS” is an execution-only service provider. This material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or investment objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by ADSS that any particular investment, security, transaction or investment strategy is suitable for any specific person. To the extent that any content in this material is construed as investment research, you must note and accept that the content was not prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.  This material may contain links to third party websites, and any content, or use of your personal data by any third party websites is not the responsibility of ADSS or any member of the ADSS Group.