curve-arrow-right curve-arrow-left fund2 trade2 secure2 powerful-2 simple2 user-friendly cost-effective-2 helpful-2 twitter-2 youtube facebook-2

S&P 500 Index

S&P 500 IndexThe S&P 500 index is often mentioned in finance related articles as a reference example.

What Is S&P 500?

It is an American stock market index that includes 500 selected joint stock companies of the USA that have the largest capitalization. The Standard & Poor’s company owns and compiles the list. The index has been published since 1957. 1941-1943 were taken as a base period for the calculation, with the base value of 10.

Shares of all companies on the S&P 500 list are traded on the largest US stock exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ. The value of the index reflects the total capitalization of companies (since 2006, adjusted for free-float). Since the weight of each company in the index is proportional to its capitalization, the index is weighted by capitalization. The index competes in popularity with the Dow Jones Industrial Average and is deservedly called the barometer of the American economy.

The list of enterprises is not the same as the list of the largest US companies, because it does not contain the privately owned companies and companies whose shares have insufficient liquidity. In addition, when compiling the list, the authors try to represent the various sectors of the American economy.

Since 1982, settlement futures have been traded on the Chicago Mercantile Exchange, the underlying asset of which is the S&P 500 index. The standard contract size is $250 x S&P 500. The mini futures of $50 x S&P 500 are also traded. In 1993, the NYSE traded fund SPDR S&P 500 was created. It follows the S&P 500 dynamics with high accuracy.

Related Indexes

  • Capitalization: It represents companies with high capitalization. The S&P MidCap 400 and S&P SmallCap 600 indexes include the medium- and low-capitalization companies, respectively. Together, these indexes form the S&P 1500.

  • Sectoral indexes: A family of sectoral indices is calculated based on a breakdown of the securities included in the S&P 500 according to the Global Industry Classification Standard. Thus, the indexes of 11 sectors, 24 industry groups, 67 industries, and 156 sub-sectors are calculated.

  • Dividends: The S&P 500 is a price index that does not consider ordinary dividends. There are two indexes that consider dividends. Specifically, the S&P Total Return - a total return index that reinvests dividends in the index, and the S&P 500 Net Total Return - a net total return index that invests dividends after taxes.

  • Weighing: The S&P 500 is a float weighted index. The Chicago Mercantile Exchange calculates the S&P 500 Equal Weighted Index.

Selection Criteria

The companies for the index are selected by a committee, which evaluates the company by using the following key criteria: market capitalization, domicile, financial viability, liquidity, public float, sector classification, and the length of time as a publicly traded company. Each of these primary criteria has specific requirements, such as:

  • The market capitalization is greater than or equal to $8.2 billion USD.

  • The minimum monthly trading volume is 250,000 shares.

  • Annual dollar value traded to float adjusted market capitalization exceeds 1.

Summary

The S&P 500 is the American stock market index that has been used since 1957 to measure the overall state of the economy in the United States. The index is created and maintained by the Standard & Poor's company. It reflects the total capitalization of over 500 publicly traded companies. To be included in the index, the companies must undergo an evaluation procedure by a committee. The committee uses the market capitalization, liquidity, minimum monthly trading volume, and other criteria to make a decision.