Nike: Just Not Doing It

While it has served its purpose as the main US equity index in the past, the Dow Jones Industrial Average in the modern day is considered a less representative major index than other alternatives like the S&P 500 and Nasdaq.  As such, its more limited exposure can miss out on certain trends, and in the past two decades, it has generally lagged the likes of the S&P or Nasdaq.

With the lagging performance aside, there have been some notable big winners among the index's 30 components. As shown below, Caterpillar (CAT) is now up over 92% in the past year, even after the recent pullback. Earlier this summer, it was up almost 160% since last September.  Meanwhile, Merck (MRK) is up over 80%, and Cisco (CSCO) has gained over 60%.

On the other hand, one stock within the Dow has been an absolute dog: Nike (NKE). The consumer apparel giant has been nearly cut in half over the past year, making it by far the worst performer in the index. As the runner-up, Home Depot (HD) is only down 21%.

As Nike (NKE) has nearly been cut in half, we would note that its weighting (the DJIA is a price-weighted index) doesn't even come up to half of a percentage point. Accordingly, it is the smallest weight and by a wide margin. The only other stock whose price point is so low that it accounts for less than 1% of the 30-stock index is Coca-Cola (KO) at a 0.98% weight.

Given the stock's low weight and impact on the index, it raises the possibility for it to be removed. However, as we illustrate below, in the past 30 years, a stock being an enormous decliner is not the sole ground for removal.  In fact, of all removals in that time, only about half were in the red at all in the year leading up to their removal.  Further, the drop in NKE would be one of the larger ones, as it would rank as the worst since General Electric (GE) when it was removed in 2018. The only other larger declines were the removals of General Motors (GM), Citigroup (C), and American International Group (AIG) in 2008 and 2009.