The Dow Jones Industrial Average is a price-weighted average, which effectively means the stocks with the highest stock price have more influence moving the average than stocks with a lower stock price do. For instance, a 2.0% move in Goldman Sachs (GS 247.75, -0.63) makes a much bigger difference than a 2.0% move in General Electric (GE 30.11, -0.17) does.
Conversely, the S&P indices are market-cap weighted. That means companies with larger market capitalizations have a stronger influence in moving the index than companies with a lower market capitalization do. For instance, a 2.0% move in General Electric, which sports a market capitalization of $264 billion, has a greater effect on the S&P 500 than does a 2.0% move in Goldman Sachs, which has a market capitalization of $98 billion.
Today, S&P Dow Jones Indices has released new market cap guidelines for inclusion in the S&P SmallCap 600, S&P Midcap 400, and S&P 500.
The new parameters indicate the S&P SmallCap 600 will include stocks with a market capitalization of $450 million to $2.1 billion (previous range was $400 million to $1.8 billion), whereas the S&P Midcap 400 will include stocks with a market capitalization between $1.6 billion and $6.8 billion (previous range was $1.4 billion to $5.9 billion) and the S&P 500 will include stocks with a market capitalization of $6.1 billion or greater (previous range was $5.3 billion or greater).
As a result of these new guidelines, a number of changes will be made to the composition of the aforementioned indices.
Specifically, Advanced Micro Devices (AMD 14.42, +0.51), Raymond James Financial (RJF 78.97, -0.33), and Alexandria Real Estate Equities (ARE 109.70, +0.89), currently S&P Midcap 400 components, will be added to the S&P 500 while Urban Outfitters (URBN 25.14, -0.03), Frontier Communications (FTR 2.58, -0.09), and First Solar (FSLR 32.34, -0.06) will slide down from the S&P 500 and into the S&P Midcap 400.
Take-Two Interactive Software (TTWO 59.35, +0.35), Masimo Corp (MASI 95.68, +0.31), and Coherent (COHR 187.64, +3.49) are going to take the place of Fossil Group (FOSL 16.78, -0.28), Denbury Resources (DNR 2.44, +0.02), and Vista Outdoor (VSTO 20.74, +0.03) in the S&P Midcap 400 while the latter three stocks will replace Take-Two Interactive Software, Masimo, and Coherent in the S&P SmallCap 600.
These index changes will all take place prior to the open on March 20 to coincide with the March rebalance.