Exxon Mobil Corp's upcoming exit from the Dow Jones Industrial Average marks the start of the massive shift in investments away from the energy sector. The move also underscores the waning dominance of energy companies as the extended coronavirus pandemic continues to place pressure on demand.
When Exxon officially is taken off the Dow next week, the only energy stock that will remain on the benchmark will be Chevron Corp. The exit is the latest indication of Exxon's continued fall from being the United States' largest company just seven years ago. At its peak in 2013, Exxon was valued at more than $415 billion. Now, the company's valuation has shrunk to just under $180 billion.
Exxon and most other energy companies have since been eclipsed by old and newly listed technology companies such as Apple, Microsoft and Amazon. The oil giant's influence on the broader S&P 500 has also diminished, shrinking to less than 2.5 percent. In comparison, energy stocks accounted for about 12 percent of the entire market back in 2011.
It has to be noted that Exxon's departure from the Dow is largely symbolic as it marks the exit of one of the benchmark's longest-tenured members. Exxon originally joined the benchmark in 1928 when it was still known as Standard Oil of New Jersey.
Summit Global Investments portfolio manager Matt Hanna pointed out that the removal of Exxon, which was once a behemoth in the country's capital markets, from the Dow just goes to show how quickly markets can change. The exit also shows how far the energy sector's influence on the markets has fallen.
The energy sector is by far the worst-performing sector on the S&P 500 this year. Since the start of the year, the sector has declined by more than 40 percent, while the S&P 500 as a whole has risen by 6.6 percent. Analysts have stated that the performances of energy stocks are closely tied to global oil prices. Given the recent collapse, it is understandable that most would greatly underperform this year.
While market experts typically expect a sector to rebound given the number of bargains available, the expectations for the energy sector remains muted. Globally, economies are slowly moving away from oil and into much greener alternatives. This spells bad news for companies such as Exxon as more investors shift to investments in other sectors.
