DOW AND OUT

The Dow dumped General Electric, its last original index member

In 1896, Charles Dow created what came to be known as the Dow Jones Industrial Average—an index consisting of just 12 companies at the time, meant to signal the state of the industrial sector. Nestled among outfits focused on cotton, sugar, tobacco, and railroads was General Electric, then a four-year-old electric company.

Today, some 122 years after the DJIA’s debut, GE is being booted from the list.

On Tuesday (June 19), Dow Jones announced it would be replacing GE in the index with Walgreens Boots Alliance. The change will take effect before the market opens on June 26.

This isn’t GE’s first rejection letter. The company was removed from the Dow index in 1898, only to return seven months later. It was replaced again in 1901, but came back for good in 1907. This latest ouster is a sign of the company’s financial struggles, and of an ongoing shift (paywall) in which types of companies are still considered key indicators of the state of US industry.

“General Electric was an original member of the DJIA in 1896 and a member continuously since 1907,” David Blitzer, managing director of the S&P Dow Jones Indices committee, said in a statement (pdf). “Since then the U.S. economy has changed: Consumer, finance, health care and technology companies are more prominent today and the relative importance of industrial companies is less.”

Analysts have been speculating for months that GE might get the boot, with Deutsche Bank predicting in January that the company’s standing would be impacted by challenges around “earnings and cash pressure, tough global power generation markets, aggressive downsizing, shrinking its portfolio, management shake-up and SEC investigations.” Wrote Deutsche Bank analyst John Inch: “Apart from GE’s other challenges, as the company’s absolute share price has continued to drop, GE increasingly falls into the category of outlier and consequently a likely candidate for removal.”

The company’s stock is down more than 55% over the past 12 months, and has lost more than 25% this year. Shares fell 1.5% in after-hours trading. Walgreens shares, meanwhile, were up nearly 3%.

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