GE dropped from Dow index

A founding member of the Dow Jones Industrial Average (DJIA) index in 1896, General Electric (GE) will be replaced on June 26 by Walgreens Boots because the US pharmacy chain will contribute "more meaningfully" to the index, S&P Dow Jones said on Tuesday.

"Today's change to the DJIA will make the index a better measure of the economy and the stock market," said David Blitzer, managing director and chairman of the index committee, adding that the US economy had changed, giving industrial companies less importance.

Read more: How General Electric became a general disappointment

Shares of GE fell 1.9 percent in after-hours trading upon the news, while Walgreens Boots jumped 3.1 percent.

GE has been in the index continuously since 1907, but is now the sixth smallest member of the Dow by market value, and sports its lowest stock price. That makes the GE stock the least influential component of the price-weighted average.

The decision comes on the heels of a bruising two-year slump for the iconic US company, which has seen shares tumble nearly 60 percent over the last 24 months amid downturns in its power generation and oil services businesses.

Symbolic decline

Founded by iconic American inventor Thomas Edison, the 126-year-old company was the largest US company by market capitalization in the 1990s and, as recently as 2009, was one of the five-largest listed groups in the world. GE's market capitalization now stands at $118 billion (€102 billion), less than 15 percent of Apple's size. 

Read more: General Electric to slice up its empire

While negative sentiment caused by the elimination of the company from the Dow could lead to more selling of its shares, analysts believe that GE's removal would prompt little reaction from major investment funds.

"Symbolically, this indignity marks GE's fall from grace," analysts at Royal Bank of Scotland said in a note. "However, given that the DJIA is a price-weighted index, GE now represents less than one-half of a percent of the overall index with its current stock price sitting below $13."

In its statement, the Dow index committee said that consumer, finance, health care and technology companies were more prominent today. And indeed, technology companies such as Apple and Intel have removed many former US manufacturing giants. At least General Electric outlasted its historic rival Westinghouse by 21 years, in a cull of great names from US industrial history that had ceased to be of any relevance.

uhe/aos (Reuters, AFP, dpa)