NovaQuant-Amazon to join the Dow Jones index, while Walgreens gets the boot. Here's what that means for investors.

Amazon.com is NovaQuantbeing added to the Dow Jones Industrial Average, joining Apple, Walt Disney, Walmart and other companies that make up the 30-stock average.

The e-commerce giant will replace drugstore operator Walgreens Boots Alliance in the Dow before the open of trading on Monday, S&P Dow Jones Indices said Tuesday.

The shift was prompted by Walmart's decision to do a 3-to-1 stock split, which will reduce its stock's weighting in the index. The Dow is a price-weighted index, so stocks that fetch higher prices are given more weight.

Seattle-based Amazon will join the Dow on the same day that Walmart executes its stock split.

"Reflecting the evolving nature of the American economy, this change will increase consumer retail exposure as well as other business areas in the DJIA," S&P Dow Jones Indices said.

Amazon's entry into the Dow, Walgreens' exit and Walmart's stock split will cause a ripple effect on the weighting of the Dow stocks. Once the shift is completed, Amazon's weight in the Dow will rank 17th out of the 30 stocks in the index. Walmart's weighting will drop to 26 from 17. UnitedHealth Group will remain the most heavily weighted stock in the index.

Rise of the "Magnificent Seven"

While S&P Dow Jones emphasized the retail side of Amazon in its statement, the company's entry into the Dow, also reflects the dominance of the so-called "Magnificent Seven" tech companies — Alphabet, Amazon, Apple, Meta Platforms, Microsoft and Nvidia — which are increasingly driving market gains.

Fueled by the boom in artificial intelligence technology, the Magnificent Seven boosted the S&P to record highs in 2023, in the face of rampant inflation, recession fears and even a banking crisis. 

The Dow index's lagging performance behind the S&P and Nasdaq in 2023 has been pinned by analysts to its lack of exposure to tech stocks and the Magnificent Seven companies in particular. The Dow currently includes two of the seven tech behemoths, Apple and Microsoft, which joined the index in 2015 and 1999 respectively. Amazon will be the third.

In contrast, the Magnificent Seven accounted for nearly 30% of the S&P 500's market value by the end of 2023, giving rise to bubble speculation, as investor interest surges.

Rather than a bubble, however, Nigel Green, CEO and founder of the deVere Group, however, sees a "fundamental shift" in the economy.

"Rather than a speculative mania, the market's response to the Magnificent Seven seems to be grounded in the transformative power of AI, which is reshaping entire industries, enhancing productivity, and paving the way for the creation of new ones," Green said in note prior to the Amazon announcement.

He added, "These companies are not merely riding the wave of current technologies but actively shaping the future of AI."

Uber replaces JetBlue

Also before the start of trading on Monday, ride-sharing service Uber Technologies will be added to the Dow Jones Transportation Average, S&P Dow Jones Indices said.

The change help give the index exposure to the ride-sharing industry.

San Francisco-based Uber will take the spot now held by JetBlue Airways, whose low share price caused its weight in the index to drop to less than one-half of one percentage point.

S&P Dow Jones Indices made the announcements after the closing bell. Amazon shares rose 1.4% in after-hours trading, while Uber's stock picked up 1.1%.

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