Brave new world for the Dow as Apple joins?

CNBC Explains: What Apple does to the Dow
CNBC Explains: What Apple does to the Dow

Apple solidified its Wall Street leadership by officially joining the Dow Jones industrial average after the close on Wednesday.

The iPhone maker replaced AT&T in the 30-stock index as Visa had a 4-for-1 stock split.

Apple's own 7-for-1 stock split last June enabled the stock to come under consideration for the Dow.

"Apple's split brought the stock price down closer to the median price in the DJIA. The Visa split will reduce the technology weight in the DJIA and make room for Apple. Among the current DJIA constituents, AT&T has one of the lowest prices," David Blitzer, chairman of the S&P Dow Jones indices index committee, said in the press release announcing the change on March 6.

The addition of Apple to the Dow does not necessarily translate into immediate gains as new blue chips tend to underperform after joining the index.

Despite having the largest market cap at more than $700 billion, Apple ranks fifth in the price-weighted Dow. Visa's split sends the stock to 21st place, while Goldman Sachs takes the lead, followed by 3M, IBM and Boeing.

The blue chip index, established on May 26, 1896, tracks 30 stocks across industry sectors "to provide a clear, straightforward view of the stock market and, by extension, the U.S. economy," according to the index website.

Tech sector weighting in the price-weighted Dow will actually go down to 17 percent from 19 percent due to Visa's stock split overshadowing Apple's inclusion in the index, according to S&P Dow Jones Indices. The split gives the financial firm greater volume in the index.

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"Apple moving 1 percent is different than JPMorgan moving 1 percent because Apple is a triple-digit stock and JPMorgan is not," said Peter Boockvar, chief market analyst at The Lindsey Group.

However, "in a price-weighted index it has much less relevance. I don't see any other relevance except symbolism. It's like a stock split," he said.

Some analysts also noted the divergence between the performance of Apple versus the overall market.

Apple joins what
Apple joins what

"Apple really hasn't been the bellwether that we think of. It's driven by its own business," Kate Warne, investment strategist at Edward Jones, said following the initial announcement.

Still, the inclusion of the biggest market cap company in the blue chips is "good news," she said. "The Dow should react well, but move a lot different than we're used to."

While Apple has often traded to its own tune, rising or falling with product releases, most analysts approved of the stock's addition to the Dow.

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"(Visa's stock split) may help lower volatility and offset Apple," said Doug Foreman, chief investment officer at Kayne Anderson Rudnick Investment Management. "They're not the largest market cap in the world by accident. They've got an incredibly successful product that … transformed the way people live their daily lives."