When General Motors filed for bankruptcy protection this past week, its 83-year tenure as a fixture within the Dow Jones Industrial Average also came to an end. Faced with the abrupt passing of an economic icon, the stock market rallied; a classic case of selling the rumor (fear of the unknown) and buying the news (increased knowledge of the future). This works in the reverse for good news.
Citigroup’s account in the DOW was also closed by Dow Jones. Replacements Cisco Systems (CSCO) and Travelers (TRV) have been given a mixed blessing, however, because over the last decade when stocks are added to the Dow it has generally coincided with a top in the stock’s price.