GE’s exit from the Dow will change the index’s calculation in an important way

The owner of the 122-year-old Dow Jones Industrial Average is poised to tweak a crucial component of the blue-chip gauge on Friday: its divisor.

The change comes with the punting after the close of trading Monday of the last remaining stock among the Dow’s original 12 components. Shares of the industrial conglomerate General Electric Co. will be replaced with shares of Walgreens Boots Alliance Inc. .

The swap means that the so-called divisor, or in this case multiplier — the figure used to determine the influence of any of the current 30 components that make up the price-weighted Dow industrials — must be revised.

The Dow isn’t exactly an average of its components, as its name might imply; instead, the value of the Dow is determined by calculating the sum of the prices of its components using a divisor that factors in company splits of their shares. Stock splits can swing the balance of influence for any one blue-chip component.

The current divisor is 0.145233969. In other words, a $1 price move in any Dow component translates to a price swing of 6.8854. The divisor will be updated before the start of trade on Tuesday, according to S&P Dow Jones Indices. The last time a change was made to the divisor it was done to reflect the merger between of Dow Chemical Co. and DuPont & Co., which gave rise to the new entity DowDuPont Inc. back in September.

This time around S&P Dow Jones Indices said GE’s flagging share price made its membership in the blue-chip gauge untenable: “Walgreens Boots Alliance’s share price is higher, and it will contribute more meaningfully to the index. It will also help the index better represent the U.S. market and economy.”

Here’s a look at some past divisors and the dates of changes:

• Jan 1, 2002: 0.144521
• June 3, 2002: 0.14445222
• Aug. 21, 2002: 0.14418073
• Nov. 19, 2002: 0.14585278
• Feb. 18, 2003: 0.14279922
• Aug. 20, 2003: 0.14249417
• Sept. 30, 2003: 0.13500289
• April 8, 2004: 0.14090166
• June 6, 2004: 0.13561241
• Nov. 15, 2004: 0.13532775
• June 13, 2005: 0.13033708
• July 14, 2005: 0.12560864
• Oct. 3, 2005: 0.12493117
• Nov. 20, 2006: 0.12482483
• April 2, 2007: 0.123051408
• June 13, 2007: 0.123017848
• Feb. 19, 2008: 0.122834016
• April 1, 2008: 0.122820114
• Sept. 22, 2008: 0.125552709
• June 8, 2009: 0.132319125
• July 2, 2010: 0.132129493
• Aug. 13, 2012: 0.12914682
• Sept. 24, 2012: 0.130216081
• Sept. 23, 2013: 0.155715905
• March 19, 2015: 0.14985889
• July 1, 2015: 0.149677273
• Dec. 24, 2015: 0.146021281
• Sept. 1, 2017: 0.145233969

The entrance of Walgreens shares into the Dow comes at a rocky time for large-capitalization U.S. equity benchmarks amid intensifying worries that a trade spat between China and the U.S. could erupt into a full-fledged conflict with knock-on effects harming the global economy.

As of Monday afternoon, the Dow was on track for a 1.4% decline, while the S&P 500 index was down 1.5% on the day at 2,714 and the Nasdaq Composite Index was off by 2.3% at 7,514.