Markets Are Divesting You From Fossil Fuels: Nathaniel Bullard

One of the oldest components of the Dow Jones Industrial Average disappeared from the popular market benchmark at the end of August. ExxonMobil Corp., a member since 1928 (when it was Standard Oil of New Jersey) and the world’s most valuable company as recently as 2011, had fallen in value over recent years, but it was finally ousted for technical reasons. That month, Apple Inc. announced a 4-for-1 stock split. The subsequent drop in the iPhone maker’s stock price narrowed its share of the price-weighted Dow. The index provider opted to adjust its component companies—booting out Exxon—to maintain the information technology sector’s weighting.

In a year of record-low oil prices, the fossil fuel giant’s demotion might seem like a harbinger of bad news for the energy sector. Yet a more profound rebalancing was already under way. In 2008 energy was the S&P 500’s second-largest sector by weight, right behind information technology. Energy, one of the S&P 500’s 11 sectors, is made up entirely of oil and gas and oilfield services companies in the index, and over the past 12 years its heft has diminished. In August, after dropping below utilities, then real estate, and finally materials, energy is now the smallest sector by weight in the S&P 500. Shrinking from almost 16% to barely more than 2% of what’s arguably the most-followed stock benchmark raises a multitrillion-dollar thought experiment for investors: What value will energy companies add to a technology-driven and increasingly electrified world?