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Why Did Dow Go Digital?

Intel and Microsoft are being added to the Dow Jones industrial average, becoming the first Nasdaq stocks ever chosen by The Wall Street Journal for its famous market measure.

Shares of the retailer Home Depot and the telephone company SBC Communications are also being added to the Dow, replacing Sears Roebuck, Goodyear Tire & Rubber, Chevron and Union Carbide.

The move prompted an increase in trading activity in the stocks as fund managers who track the Dow for index-based funds make the changes to their portfolios.

The Dow closed Tuesday at 10,302.13, about 48 points down. The Nasdaq closed at 2,811 and the S&P 500 closed at 1,281, almost 12 points down.

Why did the Journal make the changes? Cary Leahey, Senior U.S. Economist of Primark Decision Economics, told CBS This Morning's Russ Mitchell there are two reasons.

"The first is that by adding technology stocks and dropping industrial stocks, you're making the index more representative of corporate America. The second is the stocks they dropped tended to do poorly in the last few years and they're adding ones that have been high-fliers."

Leahey says the move is not a surprise: "they needed to make the index more technology intensive and less industrial intensive."

The Journal editors periodically make changes to the most-watched indicator of corporate America's performance, but the changes most often reflect an event like a merger. In fact, Union Carbide is leaving the Dow because it's merging with Dow Chemical.

The latest changes are unusually dramatic for the index. The new companies are more associated with growth companies, and they are much newer companies as well.

"The changes we are announcing today will make the Dow Jones Industrial Average even more representative of the evolving U.S. economy, as the Average--and the nation--enter a new century," said Paul Steiger, managing editor of The Journal in a statement.

The new batch of companies is also much bigger. Home Depot has the 26th-largest capitalization among the S&P 500 stocks and Sears isn't in the top 50. Microsoft has the largest weighting in the S&P and Intel is also right at the top.

Leahey, however, doesn't think the companies involved will be affected that much by the change.

"I don't think it's terribly important. It is kind of a badge of honor to be a big enough company to be in the Dow. It's no longer the case being a company on the New York Stock Exchange or being in the Dow is that big a deal. A company that's just been added named Microsoft has done pretty well in the last 15 years without Dow or stock exchange membership."

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