Around August 25th, 2020, the Dow Jones Industrial Average(DJIA) had a reshuffle. Three companies were removed and replaced. Exxon Mobil, Pfizer, and Raytheon Technologies were replaced by Honeywell, Amgen, and Salesforce.
While Honeywell & Amgen are in the manufacturing and pharmaceutical industries respectively, much like Raytheon and Pfizer respectively, Exxon Mobil is a big change – from an old-school oil & gas company to a cloud software company, Salesforce. This is a trend of the decreasing industrial nature of the Dow Jones Industrial Average, further misleading what the index represents, which is a big reason why it should not be used as a barometer to measure the overall health and status of the economy.
And this isn’t the first time in recent history that the DJIA has started to become less industrial and much less what it originated as. Two years ago, General Electric(GE) was ousted from the DJIA and replaced by Walgreens, a pharmaceutical retailer.
Two big takeaways:
- The DJIA must not be used to measure the overall heath and industrial status of the economy. The ouster of GE marks the removal of the last 19th century company from the DJIA. Somehow though, the DJIA seems to consistently find ways to go up, even when company’s market capitalizations far exceed most companies net earnings, in many cases even beyond 10x! Even in the days of the phony COVID-19 pandemic, where main street retail commerce, where the vast majority of Americans have(or had) jobs and derive(d) their incomes, has been forcibly shut down by our oh-so loving state governments, the DJIA continues to experience boosts, even as the vast majority of Americans, the real economy, rather than the less than 1% on Wall Street, continues to suffer poverty and adversity. Therefore, the DJIA does not reflect the poor economic and financial conditions of over 99% of the economy. Of course, with the DJIA constantly boosted by Quantitative Easing by the Federal Reserve, even in good economic times, the DJIA still doesn’t accurately measure the true health and status of the economy. People are still out of work, unable to meet basic living expenses like rent, mortgage, and health insurance, and not prospering, contrary to what the DJIA would have the public believe. Don’t be among the fooled public. Also, definitely don’t think that a high DJIA number means anything suggesting that the United States is even a shadow of the industrial manufacturing powerhouse that the country was in previous decades. The U.S. continues to remain a service economy that has long forgotten and shelved its now decrepit factories, that remain just as defunct and unutilized today. Blue-collar manufacturing jobs were once the mainstay of American prosperity, and a ladder for men, especially those too poor, incapable and/or uninterested in going to college, to enter the middle class. Those jobs, and ladder into the middle class for the majority of Americans, are also long gone and haven’t returned to any appreciable degree, even if the impressive DJIA figures inaccurately indicate the contrary.
- DJIA historical comparisons are absolutely useless. If companies can be added and removed without any due diligence process at all, other than of course to add and remove companies that result in higher DJIA figures, historical DJIA comparisons are akin to comparing Apples and Oranges. The comparisons aren’t valid. Therefore, when reports of impressive historical growth in the DJIA are flashed and emphasized to present a prosperous picture of the economy, there is no reason to miss detecting the illusion and lack of validity in making such misleading historical comparisons.