A new Dow dawns

Starting today, four new companies are added to the venerable Dow Jones Industrial Average, replacing four other companies. The newcomers reflect the high-tech, computer-oriented, boomer-led economy of the late 20th century.

Joining the Dow are Microsoft, Intel, (both Nasdaq-listed companies, a first), Home Depot, and SBC Communications. Leaving are Chevron, Goodyear, Sears, and Union Carbide.

"This is now a 'better Dow,' in the sense that it is more representative of the [US] economy," says Arnold Kaufman, editor of "The Outlook," an analytical review published by Standard & Poor's Corp.

Technology firms are roughly one-fourth the makeup of the S&P 500 Index, main rival to the 30-stock, 103-year-old Dow.

The fallout from the changes, which constitute the second major reworking of that index in three years, will be fourfold, analysts say:

1. The Dow looks a little more like the US economy.

2. It lists the company with the largest market capitalization of any firm in the US: Microsoft.

3. It can be expected to post slightly higher returns in a generally nonturbulent market environment. But it may sink a tad faster in a volatile environment.

4. Despite the changes, the Dow maintains remarkable continuity with America's industrial past. General Electric, for example, has been on the index for most of the past century.

Historically, a quick look at the Dow has always enabled observers to get a "snapshot" of the US. Still, it is important to remember that "the stock market is not the Dow," says Larry Wachtel, an analyst with Prudential Securities, in New York. "You could have a bear market, but still have the Dow doing well, for one reason or another," he says.

(c) Copyright 1999. The Christian Science Publishing Society