Verizon exit from Dow may favor shares over Alphabet, historical data suggests

Traders Union
All News
Financial News
Verizon exit vs Alphabet Dow

Highlights

Verizon will exit the Dow after 25 years, replaced by Alphabet, increasing the index's exposure to artificial intelligence, cloud computing, and digital advertising.
In five of the last seven Dow changes since 2015, the removed stock outperformed its replacement over the next 12 months, often substantially.
Verizon's low share price gives it only a 0.5% weighting in the Dow, so its removal is expected to have limited direct index impact.

Dow reshuffle and historical pattern

As reported by CNBC, Verizon will leave the Dow after 25 years, with Alphabet taking its place in a move that increases the index's exposure to artificial intelligence, cloud computing and digital advertising.

The change revives the so-called Dow curse, an informal market pattern in which stocks removed from the blue-chip index later outperform the companies added in their place. The article says that in five of the last seven Dow changes since 2015, the deleted stock beat its replacement over the following 12 months, often by a wide margin.

Verizon shares are up 7.5% over the last 12 months, while Alphabet shares have doubled. The Dow itself is up more than 20% in the same period. That backdrop fits a common explanation for the pattern, companies entering the index often do so after strong runs and elevated valuations, while those leaving may already reflect years of weak performance and depressed pricing.

Research and market implications

One recent example cited is Nvidia's replacement of Intel in 2024. Intel's removal followed years of operational and financial difficulties, while Nvidia's addition reflected the boom in artificial intelligence and a broader shift in semiconductors.

Data from FactSet shows Intel has sharply outperformed Nvidia since that change took effect. Intel rose from $26.20 per share on November 8 to about $132, a gain of roughly 400%, while Nvidia climbed to about $200 from $147 over the same period.

Academic research referenced in the article points in a similar direction, though not uniformly. A 2008 paper in The Journal of Wealth Management by Anita Arora, Lauren Capp and Gary Smith found stocks removed from the Dow may outperform those that replace them as valuations revert toward the mean, while a 2013 Journal of Banking & Finance paper on S&P 500 changes also found deleted stocks outperformed added stocks over the long term.

Not all studies support that view. A 1995 paper by Messod Beneish and John Gardner found newly listed Dow firms were largely unaffected while removed companies saw significant price declines. Verizon's low share price also means it has only about one-half of a percentage point weight in the price-weighted Dow, according to S&P Global, suggesting its exit carries limited direct impact on the index even as investors assess whether the historical pattern repeats.

In our earlier article on Alphabet’s addition to the Dow Jones Industrial Average, we explained that the change could trigger index-fund rebalancing and increased institutional inflows into GOOGL. We also noted that, despite uncertainty tied to AI leadership departures and elevated capex plans, Alphabet still had supportive fundamentals and key technical levels that traders were watching.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.