Market Perspective for August 25, 2020

Apple’s (AAPL) upcoming stock split spurred a change to the Dow Jones Industrial Average. As the DJIA is a price-weighted index, companies with high stock prices have a larger share of the index. Apple is currently 12.2 percent of the index while International Business Machines (IBM) is 3.0 percent of the index, about one-fourth the weighting, because Apple is $500 per share and IBM is $125 per share. When Apple splits 4-for-1, its weighting will fall to around 3.0 percent of the index, taking nearly 10 percent of the index’s technology weighting with it.

To rectify the sector weighting within the DJIA, the committee that selects Dow components announced Exxon Mobil (XOM), Pfizer (PFE) and Raytheon Technologies (RTX) will be removed from of the index as of August 31st. Amgen (AMGN), Honeywell (HON) and Salesforce.com (CRM) will now be included. The addition of CRM will replace the lost technology exposure from Apple, while the addition of Amgen and Honeywell 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.”

Shares of Exxon, Pfizer and Raytheon fell 1 to 2 percent on Tuesday morning, while Amgen, Honeywell and Salesforce.com all had gains approaching 3 percent or more. Historically, companies removed from an index have outperformed the stocks added to the index, so this might not be bad news for shareholders of the companies being removed.

The Conference Board’s consumer confidence survey for August showed an uptick in optimism. Friday will bring the final reading on the University of Michigan’s August consumer sentiment survey. New home sales for July came in at an annualized sales pace of 790,000, a new post-2008 high.

Economists predict the Bureau of Economic Analysis will increase its estimate of second-quarter GDP slightly, to negative 32.5 percent.

Federal Reserve officials are holding a virtual Jackson Hole conference this week. Central bankers from around the world attend the conference. Although not an official policy meeting, Fed officials have signaled policy shifts in the past.

Salesforce.com expects headline earnings on Tuesday. Fresh on the heels of being added to the DJIA, Analysts forecast 67 cents per share in earnings and $4.9 billion in revenue.

Shares of Medtronic (MDT) climbed more than 4 percent in early trading following its earnings announcement.

Dollar General (DG), Dick’s Sporting Goods (DKS), Tiffany’s (TIF), Dollar Tree (DLTR), Big Lots (BIG), Gap (GPS) and Nordstrom (JWN) are among the major retailers reporting this week.

Fluor (FLR), Workday (WDAY), Marvell Technology (MRVL), VMWare (VMW) and HP Inc. (HPQ) also report this week.

 

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