Dow gets shake-up as GM, Citi kicked out of average
General Motors and Citigroup were kicked out of the closely watched Dow Jones industrial average on Monday, marking a historic fall from grace for two once venerable American corporations.
In a widely anticipated move, Dow Jones & Co said technology bellwether Cisco Systems Inc will replace GM, which filed for bankruptcy on Monday morning. Travelers Co, a large home, auto and commercial insurer, will take the place of Citigroup due to the bank’s restructuring and the government’s “large and ongoing stake.”
The changes marked the latest fallout on the financial landscape from the collapse of the U.S. housing market, when home prices plunged after years of running higher as credit markets froze. The turmoil helped drive Lehman Brothers into bankruptcy last September, shaking Wall Street to its core and prompting the U.S. government to create a $700 billion financial rescue fund. The U.S. Treasury plans to use about $30 billion of that bailout money to buy a stake in GM.
GM’s bankruptcy is the third-largest Chapter 11 case in U.S. history, ranking only behind Lehman Brothers and WorldCom in terms of size.
One factor that helped seal GM’s fate was the surge in U.S. oil futures prices to record highs near $150 a barrel last July. That drove gasoline prices up to around $4 a gallon and helped kill demand for Detroit’s gas-guzzling best sellers, the sport utility vehicles, or SUVs.
GM’s removal from the Dow ended its 83-year run in the blue-chip industrial average, which has just 30 components. The only other stock with a longer history is General Electric, which was in the original Dow in 1896.
“We thought it was a fitting replacement for General Motors because Cisco with its products is really the pavement on the information highway and it’s helping shape the 21st century much the same way automobiles shaped American culture in the 20th century,” said John Prestbo, editor and executive director of Dow Jones Indexes cash advance no credit check.
Cisco, whose routers and other network gear form the backbone of technology networks, was founded in 1984. Its inclusion illustrates a shift in the economy at a time when 100-year-old GM is entering what is hoped to be a fast-track bankruptcy.
Cisco becomes the fifth technology company included in the Dow, increasing the sector’s influence on the index.
Prestbo said the addition of Travelers offset the decreased presence of financial stocks following American International Group’s removal last fall after the insurer was bailed out by the government.
Shares of Cisco gained 5.4 percent to $19.50, while Travelers was up 3.1 percent at $41.91.
GM ALSO GETS THE BOOT FROM S&P
After Monday’s closing bell, Standard & Poor’s said GM will be removed from the S&P 500 following the end of Tuesday’s trading.
In the Dow industrials, the financial sector remains a little underweight after it was eviscerated by the financial crisis fallout. That is putting more prominence on energy companies Chevron and Exxon Mobil.
With the reshuffle, Chevron will have a weighting of 5.9 percent in the Dow and Exxon will have a 6.2 percent weighting, according to Birinyi Associates. International Business Machines Corp will remain the biggest component with a Dow weighting of 9.5 percent.
Filed under: online by TheDoor