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General Electric gets booted from the Dow

Posted: 5:14 PM, Jun 19, 2018
Updated: 2018-06-19 22:14:12Z

General Electric, an original member of the Dow Jones industrial average, has been kicked out of the elite index.

S&P Dow Jones Indices announced on Tuesday that the iconic maker of light bulbs and jet engines will be replaced in the 30-stock index by Walgreens Boots Alliance.

GE was an original member of the Dow in 1896 and has been in it continuously since 1907.

Being ousted from the Dow is the latest indignity for GE, which is dealing with a serious cash crisis caused by years of bad deals. GE has replaced its CEO, slashed thousands of jobs and cut its coveted stock dividend in half.

Last year, GE was the worst-performing stock in the Dow, losing almost half of its value.

"We are focused on executing against the plan we've laid out to improve GE's performance," a GE spokeswoman said in a statement. "Today's announcement does nothing to change those commitments or our focus in creating in a stronger, simpler GE."

GE's stock plunge helped lead to its exit from the Dow. That's because the Dow is price-weighted, meaning that GE's $13 price tag had little impact on the index. S&P noted that GE had a weight of less than half a percentage point.

David Blitzer, chairman of S&P's index committee, noted that industrial companies like GE are no longer as prominent in the American economy. Banks, healthcare, tech and consumer companies play a larger role today.

"Today's change to the DJIA will make the index a better measure of the economy and the stock market," Blitzer said.

S&P said GE will be replaced by Walgreens on June 26.

It's the first shake-up to the prestigious Dow since 2015, when Apple replaced AT&T. (CNN is now owned by AT&T).

The committee that runs the Dow prefers no more than a 10-to-1 ratio between the high and low stocks in the index. Yet the gap between GE and Boeing has soared to more than twice that today.