Stock Market 101 – What is the S&P 500 and what does it represent?
The S&P 500 is a stock market index consisting of 500 large-cap companies from a wide range of industries. The index is owned and maintained by Standard & Poor’s (S&P), which is a division of McGraw-Hill. The S&P 500 is part of two larger indices, the S&P 1200 and the S&P Global 1500.
All corporations included in the S&P 500 are listed on the two largest stock markets in the US: the New York Stock Exchange and the Nasdaq. The S&P 500 corporations are considered leaders in their industries and are therefore among the most watched stocks on the US stock market. Some companies included are Exxon Mobile, AT&T, Microsoft and Procter & Gamble.
It was created on March 4, 1957 as an expansion of the pre-existing S&P 90. Advances in computer technology at the time made the index possible by calculating and disseminating the index in real time. Since its inception, the S&P 500 Index is often used as a benchmark to indicate the future of the US market and economy. At one time, the Dow Jones Industrial Average (DJIA) was the most notorious index for US stocks, but because the DJIA contains only 30 companies, most people agree that the S&P 500 is a better representation. from the US market.
Companies included in the S&P 500 are selected by the S&P Index Committee. Most of the companies included in the index are based in the United States, but there are a small number of international companies that are widely traded in the US. Going forward, the Index Committee has announced that only companies based in the US The S&P 500 is a market value weighted index: each stock’s weight in the index is proportional to its market value.
There are two ways to invest in the S&P 500. The first is by buying individual stocks. The second is by buying shares of an exchange-traded fund (ETF). One form of ETF is known as SPDR or Standard & Poor’s Depository Receipts. SPDR’s average daily trading volume is the highest of any US stock at over 200 million shares per day. Another form of ETF is the iShares S&P 500, which are similar to SPDRs but include equal shares of all index members.
Widely regarded as the best single indicator of the US stock market, this world-renowned index should be watched if you invest. Although the S&P focuses only on the large-cap segment of the stock market, it is also an ideal stand-in for the total market. Indices can be used as basic building blocks for your portfolio.