The due changes to the Dow Jones Industrial Average will make the index more in tune with the new economy, CNBC's Jim Cramer said Tuesday.
The 30-stock index, which is managed by S&P Dow Jones Indices, is set to swap three components at the end of the month, motivated by a stock split planned by the most influential company on the list.
The moves will further a much-needed modernization of the blue-chip average, he said.
"This rebalancing came about because of a need for more technology in this index, given how big the tech sector's become," the "Mad Money" host said. "I think that the job's almost done."
The S&P Dow Jones Indices announced Monday that oil giant Exxon, drugmaker Pfizer and defense contractor Raytheon will be dropped from the Dow index. In their places will go cloud subscription software maker Salesforce, biotech firm Amgen and conglomerate Honeywell, respectively.
The shakeup was spurred by Apple's forthcoming 4-for-1 stock split, which will go into effect Monday. The split will reduce the tech giant's top ranking on the price-weighted average, thus diminishing the index's exposure to the information technology sector.
S&P Dow Jones Indices announced that the shuffle, the first swap since Walgreens was added in 2018, will "help diversify the index," cut back on overlap on the index and include businesses that "better reflect the American economy."
The Dow Jones slipped 0.21%, or 60 points, to 28,248.44 during the trading day. The benchmark S&P 500 index moved 0.36% to 3,443.62, and the tech-heavy Nasdaq Composite moved 0.76% to 11,466.47, both reaching fresh highs.
"These changes had an enormous impact on today's action," Cramer said, adding, "I think these moves make a lot of sense. They bring the Dow closer to the reality of the new economy, not the memory of the old economy."
Cramer made the following comments on each addition:
Salesforce
"What a stunning fall from grace for one of the greatest blue chips of all time," Cramer said of Exxon, a Dow component dating back to 1928.
"I think this is a fantastic move. Exxon represents the fuel of the old economy: oil and gas. Salesforce.com represents the fuel of the new economy: code, cloud [and] digitization."
Amgen
Cramer said he would have preferred to see a medical instrument producer such as Abbott Laboratories or Thermo Fisher join the stock list.
"This is one of the great growth stocks of our era — it is up 72,000% since its IPO in 1983 — but it's no spring chicken. Amgen's more like the face of biotech in 2000 than the face of biotech in 2020," he said. "As a portfolio manager I wouldn't make this call, but they wanted a biotech, and Amgen's the biggest biotech, although definitely not the best or the most representative."
Honeywell
United Technologies' spinoff and subsequent tie-up with Raytheon led to the aerospace company's demotion from the Dow, Cramer said, calling it "housekeeping."
"The old United Technologies was a diversified industrial; the new Raytheon's an aerospace and defense play that's way too similar to another Dow Jones compadre: Boeing," he said. "Honeywell looks a lot like the pre-breakup United Technologies. They've got an aerospace division that's roughly 37% of the business, they've also got the building technologies division, performance materials, safety and productivity solutions."
Disclosure: Cramer's charitable trust owns shares of Apple, Abbott Labs, Salesforce and Honeywell.
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Cramer reacts to Dow Jones additions of Salesforce, Amgen and Honeywell: 'The job's almost done' - CNBC
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