NVIDIA, Sherwin-Williams Join the Dow: What Investors Should Know

Key Points

• NVIDIA and Sherwin-Williams will replace Intel and Dow in the Dow Jones Industrial Average starting November 8.
• The DJIA is making the move to provide better representation for the semiconductor and basic materials sectors.
• Investors shouldn’t base their decision to buy either stock simply on this inclusion.  

After the market closed on November 1, the S&P Dow Jones Indices announced that NVIDIA Corp. NASDAQ: NVDA and The Sherwin-Williams Company NYSE: SHW will be added to the Dow Jones Industrial Average. NVDA stock will replace Intel Corp. NYSE: INTC, and SHW stock will replace Dow Inc. NASDAQ: DOW when trading begins on November 8, 2024.  

The DJIA, or simply the Dow, is one of the bellwethers of the broader market, along with the NASDAQ and the S&P 500 Index. The Dow is a price-weighted index, which means the price of each stock determines its weighting in the index. In this case, NVIDIA will be weighted 22 out of 30 stocks and make up about 2% of the Dow. Sherwin-Williams will be the sixth highest-weighted stock and make up about 5.5% of the index.  

Why Did the Dow Choose These Two Stocks?  

The Dow is made up of 30, and only 30, stocks. However, the stocks are a cross-section of the broader market. And when one stock is added, it must replace another.  

Therefore, investors will notice NVIDIA and Sherwin-Williams replacing “like” stocks. In this case, NVDA is a semiconductor stock that replaces another semiconductor stock. The same is true of SHW, which replaces another basic materials stock in Dow Inc.  

With that said, these moves are being taken to give those two sectors better representation. Intel and Dow have been long-standing Dow stock, but they’ve been simply underperforming the market which is weighing down the index. 

In the case of NVIDIA, the Dow gets more weighting with AI stocks. With Sherwin-Williams, the index is gaining a stock that’s up 20% in 2024 and has increased its dividend for 47 consecutive years.  

Why It Matters to Share Price 

The better question may be does this matter to the share price? The answer is maybe, but not much. In fact, both NVDA and SHW stocks ended the day lower on the first day after the announcement was made.  

The Dow is like the S&P 500 in that large mutual funds and exchange-traded funds (ETFs) that are benchmarked to the Dow index will have to rebalance their portfolios to reflect the new changes. For example, since Palantir Technologies Inc. NYSE: PLTR was included in the S&P 500, the stock has jumped 38%. The inclusion isn’t the only reason for the PLTR stock spike, but investors who didn’t get involved have missed those gains.  

However, the amount of money being indexed to Dow funds pales in comparison to that of the S&P 500. And over the long-term there is no evidence to support that the individual Dow stocks have outperformed the market.  

Nevertheless, this is likely to boost retail investor sentiment. But while each stock may get a lift from its inclusion, this is more significant to the Dow in terms of its performance against the S&P 500.  

For example, as of the market close on November 4, the Dow is up 10.89% in 2024, while the S&P 500 is up 19.77%. That will improve with NVIDIA and Sherwin-Williams in the index. The two stocks are up 177% and 20% for the year, respectively.