Microsoft Split Reduces Its Clout In Dow
by Charles B. Carlson, CFA
Dow Theory Forecasts

Microsoft's recent 2-for-1 stock split had an interesting effect on the stock's clout in the Dow.

Basically, the split cut Microsoft's weighting in the Dow in half. Now, Microsoft, despite a market cap that is more than $250 billion, has a lower weighting in the Dow than Eastman Kodak, which has the smallest market cap in the Dow at just $8 billion.

Welcome to the world of the Dow.

The Dow is computed like no other index in that it is price-weighted index. That is, higher priced stocks have a greater impact on the Dow than lower-priced stocks.

Thus, Microsoft's current weighting in the Dow, because the stock now trades in the low $20s, is just 2%. Conversely, the highest-priced Dow stock, 3M, accounts for 11% of the Dow.

The bottom line is that how the Dow performs going forward has a lot more to do with how 3M performs than with how Microsoft performs.

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