Two Stocks Join the Index—Will They Live Up to the Hype?

Author

Pete Tan
November 04, 2024

The Dow Jones Industrial Average (DJIA) is shaking things up! On November 8, 2024, Nvidia and Sherwin-Williams will join this prestigious index, replacing Intel and Dow Inc. It’s a move that underscores the DJIA’s evolving focus toward tech innovation and robust materials.

But what can we expect from these newcomers, and are they poised for long-term success? Let’s dive into why they’re being added, what the impact might be on their share prices, and some history on how past new entries have fared.

Nvidia and Sherwin-Williams: Why They’re In

Nvidia’s entry marks the first time in DJIA history that a company so heavily invested in artificial intelligence and high-performance computing will join the ranks. Sherwin-Williams, a leader in paints and coatings, highlights the growing demand in infrastructure and home improvement sectors.

This reshuffle points to the DJIA’s aim to stay relevant as technological advancements reshape industries. Nvidia’s strength in AI and Sherwin-Williams’ steady growth profile align well with current economic drivers.

Short-Term Impact: What We Can Expect for Share Prices

  1. Buying Pressure from Funds: Index funds tracking the DJIA will need to add Nvidia and Sherwin-Williams to their portfolios, leading to initial buying activity that could lift both stocks.

  2. Increased Visibility and Investor Attention: Stocks in the DJIA often enjoy more media and investor attention, which can translate to higher liquidity and, sometimes, a valuation bump.

  3. Volatility Around Transition: Changes to major indexes can cause brief volatility, especially as the transition date approaches. Investors may see Nvidia and Sherwin-Williams fluctuate in the short term as managers adjust their portfolios.

Lessons from the Past: Not Every Addition Performs as Expected

While new entries often receive initial boosts, not all are guaranteed long-term success. Let’s look at Super Micro Computer (SMCI) as a recent example. Added to major indexes with high expectations, SMCI’s performance fell short as macroeconomic headwinds affected tech spending and supply chain efficiency, cooling initial investor enthusiasm.

Historically, other stocks added to indexes, like Walgreens Boots Alliance and General Electric, also struggled post-addition due to unexpected industry and company-specific challenges. While these cases don’t necessarily predict Nvidia or Sherwin-Williams’ future, they remind us that index additions aren’t a guaranteed path to long-term gains.

So which are the components of DJIA now?

The updated list of DJIA components will be:

  1. 3M

  2. American Express

  3. Amgen

  4. Apple

  5. Boeing

  6. Caterpillar

  7. Chevron

  8. Cisco Systems

  9. Coca-Cola

  10. Goldman Sachs

  11. Home Depot

  12. Honeywell

  13. IBM

  14. Johnson & Johnson

  15. JPMorgan Chase

  16. McDonald's

  17. Merck

  18. Microsoft

  19. Nike

  20. Nvidia

  21. Procter & Gamble

  22. Salesforce

  23. Sherwin-Williams

  24. Travelers Companies

  25. UnitedHealth Group

  26. Verizon

  27. Visa

  28. Walmart

  29. Walt Disney

  30. Walgreens Boots Alliance

Long-Term Outlook for Nvidia and Sherwin-Williams

With Nvidia’s stronghold in AI chips and growing applications across industries, it has potential for sustained growth. However, the tech sector’s volatility could impact its journey. Sherwin-Williams, on the other hand, brings stable growth aligned with infrastructure and housing trends, giving it a more defensive edge in the index.

What’s Next for Investors?

This shake-up is a good time to re-evaluate your portfolio’s DJIA exposure, particularly with a fresh look at the potential growth of these sectors. As always, historical performance teaches us to keep an eye on fundamentals over hype, even for high-profile additions.

Something else is happening on 8 Nov!

Also this week is a very important week! We have US elections and FOMC! Talk about major shake up! So we will be holding a special LIVE Invest with Pete on 8 Nov (Fri) to talk about both events and how it will affect the markets (hopefully we will have a new US President by then!) If you are looking to protect your portfolio and take advantage of the volatility! Make sure to join us on 8 Nov (Fri)

Stay tuned as we continue tracking these new additions and what they mean for you!

May Your Profits Grow!

Pete
Invest with Pete

🚨‼️ By the way, I’ll never PM anyone on telegram or any other social media platforms. If you receive any “Pete” messaging you, these are scammers impersonating me. Pls beware!

The information provided in this newsletter is for informational purposes only and does not constitute financial advice. Readers should seek their own independent financial advice before making any investment decisions. Please note that while Pete is a portfolio manager, the opinions expressed in this newsletter are his own and do not represent the views of any organization. Always perform your own research and due diligence before investing.