What is the S&P 500?
October 18th, 2008 | by admin |
A discussion or news report on the stock exchange and investing would not be complete without mention of the S&P 500. The term “S&P 500” is the acronym for Standard & Poor’s 500 index which is a grouping of 500 stocks that have been selected by the S&P Index Committee. Standard & Poor is one of the world’s leaders in financial advice. S&P 500 stocks are selected by a committee of economists and analysts. Their reputation is based on their ability to analyze, think critically, and provide news, data and opinions on the financial infrastructure of the world.
The S&P 500 was first established in 1957. The stocks that are included in the index are from large companies all of which are publicly owned. Originally, all of the companies were located in the United States. Currently the index includes a few companies that were originally located in the United States but have since been solely incorporated outside of the United States. There are also a couple of companies that have never been incorporated in the United States. All of the companies are traded on the New York Stock Exchange (NYSE) and the National Association of Security Dealers Automated Quotations (NASDAQ). The S&P 500 stocks are all stocks with large market capitalization. This means that their market capitalization value is more than $10 billion. The definition of the terms small, medium and large cap have a tendency to fluctuate over time.
Standard & Poor uses numerous factors which help them to determine which stocks will become part of the S&P 500 index. Some of the factors considered include the size of the market, the degree to which the stock can be bought or sold without affecting price (liquidity) and its grouping within the industry. Companies must also have four consecutive quarters of positive reporting.
Originally the index was market weighted which meant that the rise and fall of companies with higher market values weighed more heavily on the index. Today, the index only counts those shares that are available to be traded by the public. This is referred to as “free-float methodology.”
The S&P 500 is often used as the standard by which other indexes are judged. It is a very popular index and is very highly watched. The index includes both “growth and value stocks”. The index is made up of companies from various sectors including industrials, finance, information technology, health care and consumer staples. Some of the most popular S&P 500 companies include Exxon, General Electric, Proctor & Gamble, Bank of America, JPMorgan Chase & Company and AT&T Inc.