📈  Chart of the Week 4/12/2026

By Michael Allison, CFA

Source: StockCharts.com | ZeroHedge

The Dow’s Hall of Fame Problem

I found this week’s Chart to be not just interesting, but also borderline comical.

Since August 2020, Exxon Mobil, unceremoniously dumped from the Dow Jones Industrial Average after 92 consecutive years as a member, has returned roughly +271%. Salesforce, the company brought in to replace it, is down approximately -32%. That’s a gap of more than 300%, and it’s not a fluke. It’s a pattern.

The Dow committee removed Exxon at the worst possible moment: the COVID oil crash, with shares near $42, at peak pessimism about the future of fossil fuels. They added Salesforce at peak euphoria — a software darling trading at roughly 110x earnings. The committee was, in effect, selling the unloved and buying the beloved. Classic buy high, sell low.

And they’ve done it again. In November 2024, Intel, down 54% on the year and the Dow’s worst performer, was shown the door and replaced by Nvidia, which had just completed back-to-back years of gains of 240% and 170%. Returns since? Intel +40%, Nvidia +26%. The script is writing itself.

This isn’t just anecdotal. Arora, Capp, and Smith (2005) studied all Dow changes from 1929 through 2006 and found that in 32 of 50 cases, the deleted stock outperformed its replacement, with removed stocks averaging annualized returns of 15.9% versus 11.5% for additions over the following year.

Rob Arnott at Research Affiliates documented an even starker version of this in the S&P 500: additions entered at valuation premiums averaging over four times those of the stocks they replaced. He was so convinced by the data that he launched an ETF in 2024 specifically designed to buy index deletions and hold them for five years.

The structural reason is simple. The Dow uses purely subjective criteria: “reputation, sustained growth, and interest to a large number of investors.” Translation: companies get added when their cultural moment peaks. By the time a business is iconic enough for the Dow, its best growth is usually behind it. Walgreens, added June 2018, lost 63% in 2024 alone before being taken private. AIG, added in 2004, needed a $182 billion government bailout four years later. Microsoft and Intel, both added November 1, 1999, at the peak of the dot-com bubble, spent the better part of a decade underwater from their inclusion prices.

To be clear, not every deletion is a buy. Kodak, Sears, and Bethlehem Steel were all removed before going bankrupt. The signal is strongest when the removal reflects cyclical distress rather than secular decline: Exxon during COVID, GE during restructuring, Intel after missing the AI cycle. Those are the ones where the committee is extrapolating a bad trend at precisely the moment it could be about to reverse.

The Dow has a hall of fame problem: it inducts companies after they’ve already won. That’s great for plaques. It can be terrible for returns.

Source: StockCharts.com | ZeroHedge

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