FORTUNE – In the biggest change of the 30-stock index in nearly a decade, three companies will be replaced on the Dow Jones Industrial Average. Alcoa, Bank of America, and Hewlett-Packard are out, Nike, Goldman Sachs, and Visa (V) are in.
The shake-up partly reflects declining fortunes and share prices, but the timing and reasons are nonetheless curious when we look at the departure of Bank of America (BAC). Like other big banks, the Charlotte, N.C.-based bank lost big from the subprime mortgage market meltdown, and it's hard not to wonder why the Dow didn't delist the bank when it was losing billions of dollars and had the government swoop into the rescue.
The Dow gave Citigroup (C) the boot in 2009 while it was recovering from its own taxpayer-funded bailout following the financial crisis. Like Bank of America, it is steadily coming back -- Citi is trading at about $50 a share today, roughly where Bank of America was in 2007.
To be sure, the Dow (INDU) is a price-weighted index. So unlike the closely watched Standard & Poor's 500-stock index (SPX), which is weighted by market capitalization or essentially a company's size, the Dow is driven largely by stock prices. Today, Bank of America is trading at about $14 a share as it continues its road to recovery largely by cutting costs. Next to Alcoa (AA), Bank of America had the second-lowest stock in the index. But it was up from $5 at the end of 2011.
The index changes, however, go beyond stock prices. In delisting Bank of America, the Dow also wanted to include a more diverse mix of companies in the index. The goal is to more accurately capture the pulse of the broader economy.
"When you only have 30 positions to fill you have to make sure every position pays off," says David Blitzer, managing director and chairman of S&P's index committee. He adds that JPMorgan Chase (JPM), among the 30 companies listed in the Dow, runs a similar business as Bank of America.
"Goldman is different from Bank of America," Blitzer adds. It's an investment bank.
Different? Or better? Regardless, that doesn't explain how Goldman (GS) acts as a better pulse of America's economy than Bank of America, the nation's second-largest bank. Goldman might say a lot about what's happening on Wall Street, but Bank of America says a lot about how average Americans are doing -- perhaps more so today and in the coming years than previous years. CEO Brian Moynihan has vowed to pull back from risk, selling off mortgage-servicing rights and private-equity investments and instead focusing on more consumer-focused banking products, such as credit cards, home loans, and checking accounts.
Whatever is driving the changes, the index is in for smaller moves. Currently a $1 rise or fall in companies listed on the Dow moves the index 7.68 points. With all the changes, the same $1 move is expected to move the index 6.49 points, according to analysts at Birinyi Associates in a report to clients Tuesday.
This perhaps isn't shocking, as a chunk of America will be left out of the Dow.
Todd Morgenfeld has worked for 8 months on Silver Lake's buyout offer for Dell. Now he's joining the PC maker's chief rival.
FORTUNE -- Todd Morgenfeld has left private equity firm Silver Lake Partners to join Hewlett-Packard (HPQ) in a senior operating role. Yes, that's just as weird as it sounds.
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Dell's top comp is having a tough day. Could it affect the final buyout price?
FORTUNE -- Yesterday I spoke with a banker who insisted that Michael Dell and Silver Lake Partners would never get their Dell (DELL) buyout done at $13.65 per share. He felt that the market had changed too much since the offer was accepted by Dell's board, as evidenced by Hewlett-Packard's (HPQ) stock surge over the past MOREDan Primack - Apr 2, 2013 1:39 PM ET
Don't expect a rival offer for Dell.
FORTUNE -- We are now 10 days away from the end of Dell Inc.'s "go-shop" period, during which the company can solicit superior bids to the existing $13.65 per share offer from Michael Dell and Silver Lake Partners. I continue to be highly skeptical that such an offer will materialize.
Just take a look at those known to have signed nondisclosure agreements in exchange for MOREDan Primack - Mar 13, 2013 12:28 PM ET
Klarman's ill-fated investment in the computer maker lasted a little over a year, and cost him and his investors around $150 million.
Fortune -- Famed value investor Seth Klarman is done with Hewlett-Packard (HPQ), and he's taking a rare loss.
The hedge fund manager, who is a cult hero on Wall Street - his out of print book on value investing Margin of Safety sells for $2,500 on Amazon - sold all MOREStephen Gandel, senior editor - Feb 13, 2013 6:25 PM ET
Dell's PC rivals have their say.
FORTUNE -- Dell Inc. (DELL) is going private, and now its rivals are beginning to chime in on the $24.4 billion deal.
First up was Hewlett-Packard (HPQ), which is the world's largest PC maker (and one that was going to spin off its PC division before Meg Whitman took over and scrapped the idea).
"The company faces an extended period of uncertainty and transition that will not MOREDan Primack - Feb 5, 2013 1:31 PM ET
Jonathan Bloomer is having a terrible, horrible, no good, very bad week.
FORTUNE -- Jonathan Bloomer probably thought he hit professional rock bottom last Wednesday.
His six-year-old insurance venture Lucida PLC announced that it would no longer write new business, entering a run-off process after original owner Cerberus Capital Management proved unable to find a buyer or co-investors. Bloomer also resigned as CEO, but said that he would stick around as a MOREDan Primack - Nov 21, 2012 12:10 PM ET
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