RealTime IT News

Cisco Joins the Dow

After filing for bankruptcy protection this morning, General Motors (NYSE: GM) has been booted from the Dow Jones Industrial Average, making room for networking giant Cisco (NASDAQ: CSCO) Systems.

Cisco is the first company in the tech or telecom sectors to ascend to the most prominent Wall Street index since Verizon Communications (NYSE: VZ) joined the Dow in 2004. No pure tech company had been added since 1999, when Microsoft (NASDAQ: MSFT) and Intel (NASDAQ: INTC) joined the club.

Dow Jones also announced that insurance firm Travelers (NYSE: TRV) will replace its former corporate parent Citigroup (NYSE: C), as the beleaguered financial powerhouse wades through a government-supervised restructuring.

The changes will take effect June 8.

Cisco's addition ends GM's 83-year run on the Dow, and the symbolic changing of the guard couldn't be much clearer.

In a statement, Robert Thompson, managing editor of the Wall Street Journal and editor-in-chief of Dow Jones, said Cisco was an appropriate choice "because its communications and computer-networking products are vital to an economy and culture still adapting to the Information Age -- just as automobiles were essential to America in the 20th century."

So routers, hubs and Ethernet gear are replacing car doors and rear air suspensions for Hummers as the backbone of the economy. The Dow's changes in recent years have mirrored the decline of domestic manufacturing, and the last decade has seen firms like Union Carbide, Goodyear and International Paper drop off as components of the 113-year-old blue chip stock index.

The other tech and telecom companies included as components of the Dow are HP (NYSE: HPQ), IBM (NYSE: IBM) and AT&T (NYSE: T), so technology now makes up 20 percent of the 30-stock index.

The status of the financial industry is less clear. AIG was taken off the Dow in September and replace by Kraft Foods, a move that Thompson said left financial under-represented on the index.

He said today's move was designed to correct that imbalance, though substituting Travelers for Citigroup in a one-for-one swap doesn't change the proportional representation of the financial sector.

Thompson said "we were reluctant to remove Citigroup at the height of the financial frenzy," but added that the shotgun restructuring it is undertaking in concert with the government makes it no longer representative of the market.

"We genuinely hope that once the bank has refashioned itself that we will again be able to consider it for inclusion -- Citigroup is a renowned institution, not only in this country, but around the world," he said.

Cisco shares were up 5.4 percent today on the news, and the broader market rose nearly 3 percent on better than expected manufacturing, construction and personal spending and income reports. GM shares, while up today, remain below $1 and at levels not seen since 1933.

For more on the historic changes to the Dow and Cisco's role as a bellwether, see this blog post.