S&P 500 (Standard and Poor’s 500) Definition
The S&P 500, or Standard and Poor’s 500, is a stock market index that reflects the performance of 500 large companies listed on U.S. stock exchanges. It is one of the most commonly used measures of U.S. equity market performance and is considered to be a good indicator of the overall health of the U.S. economy.
S&P 500 Key Points
- The S&P 500 is a benchmark index representing the U.S. stock market.
- It includes 500 of the largest American listed companies, covering a wide range of industries.
- The performance of the S&P 500 is widely considered as a gauge of the U.S. economy’s health.
What is the S&P 500?
The S&P 500 is a market-cap weighted index, meaning companies with a larger market capitalization (value) have a greater effect on the index’s value. It is a popular measure of the American equity market and considered an important bellwether of the U.S. economic health.
Why is the S&P 500 Important?
The S&P 500 is important because it is considered a benchmark for the overall U.S. stock market. Many investors gauge their own portfolio performance against the S&P 500. If the S&P 500 is up, the overall market is typically considered to be up, and vice versa.
When was the S&P 500 Formed?
The S&P 500 was introduced by McGraw Hill Financial’s Standard & Poor’s division in 1957. It was initially comprised of industrial, railway, and utility stocks.
Who uses the S&P 500?
The S&P 500 is used by a broad range of market participants, including individual investors, financial professionals, asset management firms, and institutional investors. Its popularity is due to its broad representation of the U.S. large-cap equities market and its usability as a benchmark for many investment products.
How is the S&P 500 calculated?
The S&P 500 index is calculated by adding the total market value of the 500 companies’ stocks and then dividing that number by a proprietary divisor. The divisor is adjusted periodically to prevent changes in the index that could result from corporate financial actions, such as stock splits, dividends, or spin-offs.
