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The potential for changes in the blue-chip Dow Jones industrial average remains high, according to the head of the index's oversight committee. And some analysts believe two high-profile technology companies could be the new entrants on the index.
Those tabbed to depart? General Motors and Citigroup, both of which have needed large infusions of capital from the government to stay alive. Indeed, the automaker appears to be headed for bankruptcy, while Citigroup's capital cushion still remains tenuous.
"The chain of events involving GM and Citi seems to be marching in a certain direction," said John Prestbo, executive director of Dow Jones Indexes and the chairman of the DJI .DJI oversight committee.
Fritz Henderson, GM's chief executive officer, said on Monday it was "more probable" the automaker would need to file for bankruptcy in order to restructure, though there was still a chance it could be avoided.
GM might not be the Dow's only casualty, however, as Citigroup may also be on the chopping block because the financial institution has seen its market capitalization shaved to a fraction of its peak.
Both companies could face disqualification, said Prestbo, who had no comment on possible replacements for GM or Citi in the Dow average. He did say the removal of global insurer American International Group from the Dow last September left the financial sector underrepresented. AIG was replaced with Kraft Foods, the maker of Kraft cheese and Oreo cookies.
"The banks we have in (the index) are all pretty diversified, but AIG was an insurance company as its primary business and that doesn't exist in the Dow at present," Prestbo said.
Prestbo said that dropping GM and Citi from the 30-stock Dow average is not a done deal. The events for disqualification "have not happened yet, and may not happen," he said.
But the sharp decline in the DJIA from where it was two years ago has also stoked a decades-old debate over whether the 112-year-old index is really an accurate snapshot of the overall U.S. economy.
"It's been out of touch for a while," insisted Jocelynn Drake, an equities analyst at Schaeffer's Investment Research, in an earlier interview. "I was surprised Citigroup was still a part of it. GM is another one. I understand them trying to get a slice of the automotive sector but ... it's not a market mover anymore."
Drake added that Google and computer giant Apple are more influential in the stock market.
Certainly, adding those two companies to the roster of 30 stocks that make up the DJIA would boost the impact of the technology sector on the index. Currently, the Dow includes four pure-play IT companies: Hewlett-Packard, IBM, Intel, and Microsoft.
Some observers believe a hike in the number of tech companies in the Dow is long overdue. They say the Dow's current lineup does not provide a true snapshot of what's going on in the market or in the U.S. economy.
But others say financial services companies such as The Travelers or Goldman Sachs would make better proxies for the stock market. "The financials have a much larger bearing on the market than is reflected in the Dow," said James Bianco, chief executive officer of Bianco Research Securities, in an interview in March.
And even with the possible additions of Apple and Google, the Dow would still not be seen as a bellwether for the tech industry. That role falls to, among others, the IT-heavy Nasdaq—and it's Nasdaq 100 index.
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