Welcome to the wild world of indexing, Visa (NYSE:V) and Mead Johnson Nutrition (NYSE:MJN).
By the end of the trading week, the credit card marketer and baby-formula maker will be added to the S&P 500, where they will take the place of Ciena (NASDAQ:CIEN) and MBIA (NYSE:MBI).
Just as the Dow Jones Industrial Average did a little spring cleaning earlier this year, the major indices routinely adjust their gauges to boot out companies that are being acquired or have faded in relevance.
Clearly, the shuffle shouldn't have an impact for long-term investors, although there's a trading benefit to index validation. Shares of Visa and Mead Johnson should inch higher on heavy volume this week, as index funds buy into the two stocks to allocate their portfolios accordingly.
Tacking on Visa and 2009 IPO Mead Johnson Nutrition won't be controversial. They are worthy replacements that have earned their stripes during the recession. The S&P 500 is also broad enough to enlist 500 of the most valuable public companies. It's not the joke that the Dow Industrial 30 has become in measuring the market.
I know I'm not the only one wondering why Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) haven't made the cut on the Dow. They have been S&P 500 tenants for years. I also wondered at the time why Visa wasn't Dow-worthy. Well, it's S&P 500-worthy for now, and that's a start.
