Getting Kicked Out of the Dow Is Actually a Buy Signal
History shows stocks dumped from the Dow often outperform. Verizon may benefit as Alphabet gets added.
Wall Street calls it the 'Dow curse,' and it might be the most contrarian trade hiding in plain sight. When a stock gets booted from the Dow Jones Industrial Average, the kneejerk reaction is to sell. That instinct is almost always wrong.
The mechanics are simple. Index funds tracking the Dow are forced to dump the removed stock and buy the replacement. That mechanical selling creates artificial price pressure — a discount that has nothing to do with the company's actual fundamentals. Smart money knows this and has historically stepped in to scoop up the unloved name.
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Right now, that spotlight is on Verizon. With Alphabet stepping into the Dow, Verizon gets the boot. If the 'Dow curse' pattern holds, Verizon becomes the trade worth watching. The stock gets punished not because its business deteriorated, but because index mechanics forced sellers into the market. That's your entry point.
Alphabet, meanwhile, carries the opposite risk. Fresh Dow inclusion triggers a wave of forced buying from index trackers, which can temporarily inflate the price beyond what fundamentals justify. History suggests new additions sometimes underperform in the months following their debut. Hype has a way of fading fast.
This isn't a guaranteed slam dunk — no trade ever is. But pattern-aware investors know that the Dow reshuffle calendar is worth tracking closely. The next time you hear a stock got cut from the index, don't flinch. That might be the loudest buy signal you'll get all year. Continue reading at MarketWatch.com
