Investors responded to the news enthusiastically. On Monday, KKR stock was 12% higher, CrowdStrike rose 8.9%, and GoDaddy had gained 1.9%.
While joining the Dow might be splashier given the benchmark’s ubiquity among retail investors, joining the S&P 500 can be far more meaningful.
When a company is added to an index used as a market benchmark, funds that track that index must buy the shares or at least consider purchasing them. Far more money is benchmarked to the S&P 500 than Dow—some $11.4 trillion in the former at the end of 2022 versus $89 billion for the latter—and that’s real cash that will be put to work in the additions.
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The S&P 500 also uses more quantitative requirements for addition than the Dow. Companies joining the S&P 500 must be large and profitable. The additions to the Dow are more qualitative and the timing of changes often leaves much to be desired.
which took the place of
back in August 2020 is down about 11% from then through Friday’s close, according to FactSet, while
which joined in June 2018, has tumbled 74% since then.
Beyond that, because the Dow is a price-weighted index, it is more limited in what it can include. Stocks can’t be too cheap, but they also can’t be too expensive, so they tend to range between $100 to $200 in price. That means a company like
had almost no chance of being in the Dow when it traded above $1,000, but could get added now that it trades at $122.67 after a split even though nothing has fundamentally changed.
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The biggest boost, though, comes from predicting the companies that could be added to the S&P 500. That’s much harder to do.
Write to Emily Dattilo at emily.dattilo@dowjones.com
