Market Extra: Goldman Sachs to replace Visa as Dow’s top dog

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
Source: FactSet

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.


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