For more than a century, the Dow Jones Industrial Average has tracked the stock market performance of the country’s largest publicly owned companies. And from the very beginning General Electric was an essential component of this distinguished group. As the years went by and the company expanded into all sorts of industries, its continued dominance of the business world appeared all but guaranteed.
Then came the 2008 financial crisis. The collapse of the housing market dealt an enormous blow to GE Capital, the conglomerate’s financial services subsidiary and primary revenue generator. In order to keep the troubled company afloat, GE sold its stakes in companies such as NBC and attempted to expand into other industries like it had in the past. These investments largely failed, however, forcing the company to start selling GE Capital altogether in 2015. With its most lucrative enterprise gone, GE went into a tailspin from which it has yet to recover. After losing half the value of its share price in 2017, the company’s stock is down by more than 25 percent so far this year. Along with recently losing its CEO, GE has also laid off thousands of people as it struggles to pay its debts.
As a result of all this chaos, the company lost its coveted spot on the Dow Jones earlier this summer. With its share price currently hovering around $13, GE represents less than 0.4 percent of the index. For comparison, Boeing’s high share price has nearly 27 times the influence over the Dow than GE. The former corporate heavyweight is also being replaced by a more consistent performer: Walgreens Boots Alliance, whose $70 stock price should actually affect the index. As for GE, only time will tell if this iconic American company can get back on its feet. “When many people think of GE, they think of America,” said Deutsche Bank analyst John Inch. “It’s hard for them to understand how this thing fell apart so quickly.”
Questions:
- Why did General Electric lose its spot on the Dow Jones Industrial Average?
- What is the purpose of stock indexes like the Dow?
Sources: Matt Egan, “General Electric Gets Booted From the Dow,” CNN, June 19, 2018; Matt Egan, “How Decades of Bad Decisions Broke GE,” CNN, November 20, 2017; Matthew Frankel, “Why Was General Electric Removed From Dow Jones Industrial Average?” USA Today, June 27, 2018.