What's going on?

Two well-known UK companies, EasyJet and Dixons Carphone, are likely falling out of an important grouping of the country�s 100 biggest companies � and we can all learn a bit from the experience.

What does this mean?

A stock market index is kind of like a weather gauge: as the share prices of the companies that it tracks move up or down, an index can show how hot (or not) markets are. The FTSE 100 index includes the 100 biggest companies that have shares listed in the UK (just like the S&P 500 contains the 500 largest companies in the US). As a company�s individual share price rises/falls, the company moves up/down in the ranking of the index accordingly. EasyJet and Dixons Carphone have been moving down: their share prices have dropped some 30% versus a year ago. As a result, both are now likely have to exit the index.

Why should I care?

For markets: Established companies are feeling the pinch.

EasyJet has been battling turbulence: not just from an oversupply in the European airline space, but also from a weaker pound following Brexit. Like British Airways, many of its costs are in euros while much of its revenue is in pounds. Dixons Carphone, which owns electronics retail shops around the UK, has been struggling against online competitors.

The bigger picture: Dropping out of an index is more than just a loss of prestige.

Some investments are explicitly linked to indices like the FTSE 100 or the S&P 500, via so-called �tracker� funds. If a company drops out of an index, managers of that fund will need to sell shares in the company for their portfolio to keep tracking the new, reconstituted index. So there can be a real knock-on effect for a company�s stock price � aside from just a loss of prestige � from leaving a high profile index.