Absolute Beginner
Alphabet is a big company. It owns Google and YouTube.
The Dow Jones is a list of 30 important US companies. It tells us how US business is doing.
Alphabet will join this list on June 29. It will replace Verizon.
This is the first change to the list since 2024.
- company
- a business that sells things or services
- join
- to become part of a group
- replace
- to take the place of something or someone
- list
- a group of names or items written together
- important
- having great value or meaning
- business
- work done to earn money by selling goods or services
- announce
- to tell people about something officially
- change
- something that is different from before
Elementary
S&P Global announced on June 23 that Alphabet, the parent company of Google and YouTube, will join the Dow Jones Industrial Average on June 29.
The Dow Jones is a famous stock index that tracks 30 of the most important companies in the United States. Alphabet will replace Verizon in the index.
The change makes the Dow Jones more reflective of how the US economy actually works today, with technology companies playing a bigger role than telecommunications firms.
This is the first change to the index since 2024, and it means that five technology giants now sit together in the Dow: Apple, Microsoft, Amazon, Nvidia, and Alphabet.
- parent company
- a company that owns another company
- index
- a list of stocks used to measure how the market is doing
- tracks
- follows and records changes in something
- reflective
- accurately showing what something is really like
- economy
- the system of money, trade, and industry in a country
- telecommunications
- the technology used to send information over long distances
- giant
- a very large and powerful company
- announced
- made an official public statement
Intermediate
S&P Global announced on June 23 that Alphabet Inc, the parent company of Google and YouTube, will be added to the Dow Jones Industrial Average on June 29, replacing Verizon Communications in a move widely seen as overdue.
The Dow Jones Industrial Average is a price-weighted index comprising 30 blue-chip US companies. Its composition is periodically reviewed by S&P Global to ensure it reflects the current structure of the US economy.
The substitution of a legacy telecommunications company with one of the world's most dominant technology conglomerates signals that the Dow is catching up with shifts in how value is created in the American economy. Technology giants Apple, Microsoft, Amazon, and Nvidia were already present; Alphabet's addition gives the sector an even greater footprint.
Alphabet's Class C shares will be used for the index entry, a technical choice that avoids complicating the index calculation. The move is the first reshuffle since 2024, and analysts expect it to attract substantial passive fund inflows as index-tracking funds rebalance their portfolios.
- overdue
- something that should have happened earlier than it did
- price-weighted
- calculated based on the share price of each stock in the index
- blue-chip
- describing large, well-established, and financially stable companies
- composition
- the way a group is made up of its parts
- conglomerate
- a large corporation made up of several different companies
- footprint
- the size or influence of something in a given area
- passive fund
- an investment fund that tracks an index rather than actively picking stocks
- rebalance
- to adjust the mix of assets in a portfolio to match a target allocation
Advanced
The decision by S&P Global's Index Committee to substitute Verizon Communications with Alphabet Inc in the Dow Jones Industrial Average on June 29 represents more than routine portfolio housekeeping: it acknowledges, belatedly, a structural transformation in the composition of the US economy that the index had conspicuously failed to capture.
The DJIA, a price-weighted average of 30 notionally representative US equities, has long attracted criticism for its anachronistic weighting methodology and its tendency to retain legacy constituents well past the point of economic relevance. Verizon, a company whose market capitalisation and earnings trajectory have stagnated relative to the frontier of value creation, stood as a prominent example of that inertia.
Alphabet's addition, using its non-voting Class C shares to sidestep the dual-class complications that previously complicated inclusion, brings the technology sector's Dow footprint to five companies: Apple, Microsoft, Amazon, Nvidia, and Alphabet. This concentration is not without critics, who argue that such heavy sectoral weighting introduces a correlated volatility risk that the index's designers never anticipated.
From a market-mechanics perspective, the reshuffle will trigger mandatory rebalancing by the substantial passive investment universe that tracks the DJIA. The buying pressure on Alphabet shares and the corresponding selling of Verizon around the June 29 implementation date is expected to produce measurable short-term price dislocations, a phenomenon index arbitrageurs will seek to exploit.
- belatedly
- happening later than it should have
- anachronistic
- outdated; belonging to a different and earlier time
- constituents
- the individual members or components that make up a larger group
- inertia
- a tendency to do nothing or to remain unchanged
- dual-class
- a share structure with two types of shares offering different voting rights
- correlated volatility
- a situation where multiple assets move in the same direction at the same time
- dislocations
- situations where prices deviate temporarily from their expected values
- arbitrageurs
- traders who profit by exploiting price differences between markets
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