Major shakeup for the Dow Jones Industrial Average index: 3 new stocks join

New York(CNN Business) The Dow Jones Industrial Average is getting a massive shakeup to balance out the disruption from Apple's stock split.

Salesforce (CRM), Amgen (AMGN)and Honeywell International (HON) will join the Dow (INDU), replacing Exxon Mobil (XOM), Pfizer (PFE), and Raytheon (RTN), S&P Dow Jones Indicies said in a statement Monday.

The changes to the 30-stock benchmark index are designed to offset Apple's (AAPL) 4-to-1 stock split, which goes into effect August 31. The split would have reduced the index's weighting of the tech sector. Adding Salesforce will help keep the appropriate balance.

The new additions will also "help diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy," according to S&P.

The changes to the index will go into effect on August 31. They won't change the level of the Dow, because the S&P is changing the "Dow divisior" that is used to calculate the level of the index based on the performance of the component stocks.

The Dow is designed to be a way to measure the strength or weakness of the entire US stock market, and Monday's changes hint at some broader shifts in the American economy. Being part of the Dow is a symbol of prestige, but it doesn't necessarily help or hurt a company's stock. Most ETFs and index funds trade the much broader S&P 500, among other indexes, rather than the 30 Dow stocks.

Still, Monday's changes mark the removal of two companies with some of the most storied histories in the index, after it booted General Electric (GE) in 2018 following 110 consecutive years in the Dow.

This is the first time since October 1928, when the Dow was expanded to 30 companies, that Exxon will not be a part of the index (back in 1928, Exxon was called Standard Oil of New Jersey). The move comes after several extremely challenging months for the oil and gas industry, caused by a price war and the fact that travel was stunted during the pandemic.

Defense contractor Raytheon, through its United Technologies merger, has been in the Dow consistently since 1939.
Pfizer was added to the Dow in April 2004 (it replaced Kodak, which had been on the index since 1930).

Meanwhile, Honeywell is rejoining the index. Honeywell was in the Dow (formerly as Allied Chemical and Dye Corp. and then Allied-Signal) from December 1925 through February 2008. The conglomerate operates in businesses such as aerospace and performance materials, and is a leader in key emerging technologies such as quantum computing.

Cloud computing and customer relationship management company Salesforce has likely been boosted by work-from-home policies during the pandemic.

Salesforce, Amgen and Honeywell shares were all up around 4% in after-hours trading Monday. Exxon, Raytheon and Pfizer shares fell around 2%, 3% and 2%, respectively.