In an effort to modernize and potentially improve its performance, the Dow Jones Industrial Average is undergoing a significant change this week. Amazon is set to become a member of the blue-chip index, replacing Walgreens Boots Alliance on Monday. The addition of the dominant e-commerce platform comes as the Dow has struggled to keep pace with the broader market, particularly the S&P 500, which has seen significant gains over the past 12 months.

The Dow, comprised of just 30 components and weighted by the share price of individual stocks rather than total market value, has been viewed by some investors as an outdated representation of the stock market. With technology playing a larger role in the U.S. economy, the Dow has continually lagged behind in gaining exposure to rapidly growing tech companies.

As of Friday, the three largest tech stocks in the Dow by market cap were Apple, Microsoft, and Salesforce, while companies like Nvidia and Alphabet were notably excluded. The addition of Amazon, a tech giant broadly accepted as a consumer discretionary stock, is expected to help bridge the gap between the Dow and the S&P 500.

Ed Clissold, chief U.S. strategist at Ned Davis Research, highlighted that the Dow has been trailing behind during the recent tech-led rally, with a 19% increase over the past 12 months compared to the S&P 500's 28% gain. The move to include Amazon aims to make the Dow more relevant and relatable to investors, aligning with the changing landscape of the market.

While the addition of Amazon does not guarantee an immediate rally for the Dow, historical data suggests that stocks replaced in the index often outperform their replacements in the short term. Nevertheless, the move signifies the Dow's commitment to staying current and keeping pace with the evolving market trends as it strives to remain a key benchmark for investors.