NEW YORK (MarketWatch) — Does Goldman Sachs have what it takes to take the reins of the Dow Jones Industrial Average?
After Visa’s stock V, +4.54% had a sparkling 16-month run as the top dog among the Dow’s 30 components, in terms of the influence on the blue chip barometer’s price, the four-for-one stock split announced late Thursday will drop it down to 20th place.
That would push Goldman Sachs’ stock GS, -1.20% to the top of the list of priciest Dow stocks, followed by 3M MMM, -1.40% and International Business Machines IBM, -0.75% That might spook some investors, given that Goldman has been the fifth-worst performing Dow stock so far this year, and the financial sector has been the worst performing of the 10 S&P 500 sectors.
The Dow is a price-weighted index, meaning the highest priced stocks have the most influence on the index’s price. For most other indexes, such as the S&P 500, the stocks of companies with largest market capitalization have the most influence.
To calculate how a stock currently affects the Dow, divide the price change by the Dow divisor, which is currently 0.15571590501117. So a 1% move in Visa’s stock in either direction, which would represent a $ 2.48 price change based on Thursday’s closing price, would move the Dow by 15.93 points. That’s about triple the influence of Exxon Mobil’s stock XOM, -0.46% even though Visa’s market cap of $ 128.5 billion is about one third of Exxon’s $ 373.2 million.
Here’s a recap of what Visa’s stock has done for the Dow, since it was added to the index on Sept. 23, 2013, compared with some other components:
|Company (ticker)||Price change since 9/23/2013||Effect on price of Dow (points)|
|Visa (V)||+$ 63.53||+407.99|
|Goldman Sachs (GS)||+$ 8.37||+53.75|
|3M (MMM)||+$ 42.71||+274.28|
|IBM (IBM)||-$ 37.04||-237.87|
|Exxon Mobil (XOM)||-$ 1.31||-8.41|
Once Visa’s stock split takes effect on March 18, the Dow’s divisor will get tweaked, so the $ 195 change in Visa’s split-adjusted price won’t impact the Dow’s price.