Exxon’s removal is a “sign of the times,” Raymond James said, as the company — and energy sector broadly — falters, a weakness made all the more apparent by strength in technology names. Energy now makes up just 2.5% of the S&P 500, compared with 6.84% five years ago, and 10.89% 10 years ago. Technology has jumped from 18.48% of the index in 2010 to 28.17% today.
Chevron is also in the Dow, meaning the energy sector was overrepresented in the benchmark to begin with. And with Apple’s coming 4-for-1 stock split, the Dow’s exposure to tech was set to decrease. Exxon shares fell 3% on Tuesday after news of the removal.
Over time the S&P 500 has surpassed the Dow in importance given that it better reflects the market and economy. Not only does it contain hundreds of additional stocks, it’s also market-cap weighted, which means that larger companies have a greater influence. The Dow, on the other hand, is price weighted.
Why Exxon and not Chevron?
Chevron shares, while also struggling this year, have returned roughly 25% over the last five years. Its stock price is currently a little more than double Exxon’s. While this is not relevant to investing generally, it is relevant to the price-weighted Dow. But that’s likely not the only reason Exxon got the ax instead of Chevron.
Source: FXPro