There is talk around the ol’ internet watercooler that General Motors and Citigroup are about to be kicked off the Dow Jones Industrial Average due to their lackluster performance and long term outlook. Both of the companies stocks are trading around a $1 with Citigroup taking the title of the first stock to be traded on the index as a penny stock. Since the Dow follows 30 of the largest and most widely held public companies in the United States, would Apple (AAPL) and Google (GOOG) take GM and Citigroup’s place if they are removed?
General Motors is the longest continuous fund on the Dow Jones with a 1925 induction date, but the stock has never traded this low related to the overall market; even after the Dow Jones saw mini-crash in 1988. Citigroup was added in 1997 under the name Travelers Group but more recently been part of the US meltdown. While both companies probably represent Americans’ financial outlook accurately, the two companies simply do not meet the basic guidelines for a Dow Jones stock.
The Dow Jones Industrial Average generally is comprised of 30 of the most influential companies which properly provide a cross section of America’s industries. The Dow’s traditional requirements of size and volume doesn’t fair well for both GM and Citigroup in their current state. Both of the companies have lost incredible volume as their collective industries have collapsed, where companies such as Apple and Google have maintained reasonable growth and valuation.
Obviously nothing has been confirmed Dow Jones yet and Apple / Google are not the only possible companies that might replace whoever gets removed from the index. There are numerous other counter-cyclical companies that are surviving and growing in this rescission but Apple and Google are two of the favorites swirling around today. Nevermind the fact that neither company fits the traditional Dow Jones Industrial profile.
Some might say that the Dow Jones, with the limited amount of funds to track, is inaccurate and insignificant compared to the reach of the S&P 500. But still, it is the Dow that most Americans know and follow. Plus, there is a certain amount of prestige having a stock listed on the 2nd oldest index, but both GM and Citigroup have more pressing issues than their Dow Jones status.
[img from nytimes]
Since when did CrunchGear started to get involved with ridiculous finance rumors? No wonder you guys wonder about “Blogs Losing Their Authority To The Statusphere?”…..
Matt, do me a favor, just review gadgets, will you please?!
We cover ridiculous rumors of all kinds. The financial world doesn’t get a pass. Besides, Apple and Google are old friends of consumer tech, their rising financial relevance is news for any tech reporter.
yet another TC/CG rumor just pulled out of thin air. Interesting that there is all this ‘talk’ worthy of a post, but no actual links!
Devin, you either must be high or Arrington needs to recover the money he spent while on vacation….badly!
“We cover ridiculous rumors of all kinds.” Uhh, that’s not something you should be proud of …
“We cover ridiculous rumors of all kinds.” – is that the new tagline for crunchgear?
Maintain some standards. Seriously.
“… but both GM and Citigroup have more pressing issues than their Dow Jones status.”
Nicely concluded :)
Am I the only person who’s scared, yet also kind of excited about all the changes? It seems during these periods of massive unheaval of the status quo that truly great innovation comes forward… might be a real boon to new technology and such.
I’m sorry for badly managed companies who will cost lots of lost jobs & such, I truly am; but in the bigger picture it’s kind of exciting to think about what new innovation will come out of it. Talent doesn’t sit idle for long.
Big changes like this are always scary but have chance at bringing us to so many greater things. Plus I don’t think GM and Citibank can be saved at this point. Pulling them out of drowning would be like trying to turn the middle east into a democracy. We’ve all seen how that turns out.
Wow.. these two companies have now become penny stocks.. Their fate was clearly known to everyone for last two years. Somehow they were not removed from Dow Jones index all these days.
In Sensex, lot of changes happened in a single year in the recent market meltdown.
GM is a dead horse The sooner they filer chapter 11, the less it will cost the taxpayers!
One thing that may make this unrealistic is that Intel, Microsoft, HP and IBM are all part of the DOW. Adding Apple and Google would make it pretty tech/computer heavy. No other industry is currently represented like that in the DOW.
I think Jeff is right – tech is hugely important but I can’t see a full 20% of the Dow being tech companies. You could make the argument that different tech companies are proxies for different segments of the economy but there are still many other industries that need representation for the Dow to remain balanced.
Joseph Kingsbury, Text 100
Lipstick on a pig… http://dshort.com/charts/bears/four-bears-large.gif
Window dressing for a market that needs to reflect its illness.
I think, online companies will be majority on Dow Jones in 20 year.
Is Arrington pressuring you guys into pulling these ridiculous stories out of the dark crevices of your ass?
Report on whatever the hell crunchgear is supposed to and leave the financial punditry to the financial pundits.
Next we’ll hear you guys reporting on how futures for toilet paper are on the rise due to the escalation of toilet paper demand in the Googleplex.
The S&P 500 is the wider reaching representation of the market, but the Dow has two things going for it:
1. Larger numbers
2. Companies people know and interact with
1) Seeing an index drop from 14,000 to 7,000 is a bigger punch than a drop from 1300 to 650. It simply grabs attention better.
2) People know Being, Disney, GE, Coca Cola, 3M, Mcdonald’s, etc. They interact with these companies on a higher frequency on a per-company basis and so they’re the ones they associate themselves with.
I wouldn’t be surprised to see Apple make the Dow, however I would wonder why Dell wouldn’t make it first. Dell’s annual revenue is about twice of Apple. The difference is that Apple probably has a lot of it’s revenue from iPods, iPhones, etc., and so more people might actually interact with it even though revenues are lower because they’re smaller revenue items.
One more question – why wouldn’t Honda/Toyota replace GM?
because they are not american!
I find it interesting that you chose to mention Apple but not Cisco as a possible replacement. Since no others were mentioned, MSN Money is also saying Visa, US Steel and Goldman Sachs are also possible.
Awesome.
What would be interesting is what this would do to the market… what kind of signal would this push?
Personally, I think it would be the catalyst the market needs to turn around, since this is the metric everyone uses to make their stock decisions.
But, it would definately be the nail in the coffin for GM and Citi.
This is a really lame / under-reported story. You’re missing the most obvious reason why these stocks would be removed from the Dow – they are in violation of its $10 minimum price rule. Also, you fail to discuss the fact that the Dow, unlike the S&P and Nas, is price-weighted, which means that right now IBM has about 100x the weight in the index as GM or Citi (and has been making the Dow overperform as a result.)
Yup, that’s what happens when you get your 16 yr old bubblegum chewing teenage girl to fix your car.
Techcrunch doesn’t know anything about financial reporting, they just want to wank themselves and feel important.
A pity since TC used to be such a reputable source of info.. *cough* *cough*
What would happen to the Nasdaq if these companies went to the DOW?
Eh, the DJIA pretty fundamentally flawed as a consequence of being price-weighed. If GOOG and AAPL were to become part of the DJIA, they would be (along with IBM) the most weighted companies on the index. This would make the DJIA an increasingly tech-dependent index, further reducing its value in terms of actually tracking a cross-section of blue-chip stocks.
No way! GM and Citi are too big to get kicked off
About time! This is the changing of the guards. GM has been irrelevant for a long time now. Citibank will probably stick around.
we could all see this coming
GM is nothing but nostalgia. We all remember riding around in GM cars, I remember all my childhood car memories, road trips, in a Malibu Wagon. It was good. But its over. All we’re doing is propping up a brandname now. The sooner their workforce is redeployed in something that America can compete in, the sooner we recover.
What’s good for GM is bad for America.
http://moneyveil.com/?p=144
Woah!
Wouldn’t we also have an awesome unemployment rate if we removed those people who are unemployed from the rate?
General Motors might be out of the Dow Jones Industrial Average,2nd oldest index due to it’s lackluster performance and an unsteady growth in the market.But GM will try to maintain reasonable growth and valuation to salvage some pride and make healthy GM Stock Price.I am sure GM will be able to do it.
Where’s the fact checking on this post? A simple history check of the Dow will show it’s original founding date of May 26, 1896; that original average included 12 stocks. Only one of those 12 stocks is still part of the Dow today – General Electric. How can this article claim that “General Motors is the longest continuous fund on the Dow Jones with a 1925 induction date”? Is this a typo, bad fact checking or am I misunderstanding something?
I’d really love to know if this actually has any legitimacy. If so, this seems pretty huge. I’ve done some searching and nowhere else are there any similar reports…
This isn’t just pulled from thin air. I’m in the finance industry. A third of DJIA stocks no longer fit the criteria. The proportion isn’t that much farther off with the S&P 500. DJIA stocks more around regularly; which is amusing when you hear the “returns 8% a year” claim considering the stocks are picked and removed at will. The reason why a replacement is needed is because it’s a price weighted index. With BAC, C, F, GM, etc. all floating in the low single digits, they comprise almost no percentage of the index. IBM alone for instance is a multiple of the weighting of all of the above. If all of them went bankrupt on monday, DJIA would only fall about 150 points. Obviously the index is broken.
The only reason this hasn’t* happened is because of the bad press. Those that regulate the index would be blamed for further deterioration of those stocks once they were pulled.
Since the credit markets have evaporated, firms with no debt have held up proportionally much better. This is why tech giants like AAPL and GOOG are real potential canidates.
My favorite tech site right now is This digital security site though.
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