The 130-year-old Dow Jones Industrial Average (DJINDICES: ^DJI) is one of the oldest and most iconic stock market indexes. And with just 30 components, it is far more selective than the S&P 500 or the thousands of companies listed on the Nasdaq Composite.
And while the Dow is getting more tech-focused — most notably with its addition of Alphabet in June — no component holds more weight than Goldman Sachs (NYSE: GS).
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Here’s why Goldman Sachs is so large that it can single-handedly move the index, and why a stock split could be in the cards before the end of the year.
A Goldman Sachs stock split is coming
The Dow is a price-weighted index. So, companies are weighted by their stock prices rather than by market cap. Modern market mechanics make it easy to weight an index like the S&P 500 and Nasdaq in real time using market cap. But back in 1896, when Charles Dow published the index, it was more convenient to simply add up the stock prices of the components and divide by the number of components to get the average.
Goldman Sachs has never issued a stock split since going public in 1999. But the stock has been on an absolute tear — tripling over the last five years and rising 9% on July 14 to an all-time high closing price of $1,140 per share.
Goldman Sachs is the only Dow stock trading above $1,000 per share and accounts for 12.9% of the index. For context, the median-priced Dow stock is closer to $250 per share.
Goldman Sachs’ high share price is reason alone for it to issue a 4-for-1 stock split. But what makes the argument even more compelling is that the financial sector accounts for such a large share of the Dow.
The financial stocks in the Dow are all within striking distance of all-time highs, and none have issued stock splits for over a decade.
Goldman Sachs, Visa, American Express, JPMorgan Chase, and Travelers Companies are all top-10 components in the Dow and make up a combined 28.6% of the index — by far the most of any sector. For context, financials make up just 11.8% of the S&P 500.
Even if Goldman Sachs issued a 4-for-1 stock split, financials would still be highest weighted sector in the Dow.
Goldman Sachs exposes a glaring flaw in the Dow
Even if you’re not interested in investing in Goldman Sachs directly, its high share price and inclusion in the Dow illustrate just how influential a single stock can be on the storied index.
