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The S&P 500 is a list of 500 U.S. corporations and a stock market index, owned and maintained by Standard & Poor's. The S&P 500 forms part of the S&P 1500 and the S&P Global 1200. All of the companies in the list are large publicly held companies which trade on major US stock exchanges such as the New York Stock Exchange and Nasdaq. The market-value weighted performance of the stocks of these companies is known as the S&P 500 index. After the Dow Jones Industrial Average, the S&P 500 is the most widely-watched index of large-cap US stocks and is considered to be a bellwether for the US economy. It is often quoted using the symbol GSPC or SPX, and may be prefixed with a caret (^). Many index funds and exchange-traded funds track the performance of the S&P 500 by holding the same stocks as the S&P 500 index, attempting to match its performance. Partly because of this, a company which has its stock added to the list may see a boost in its stock price as mutual fund managers are forced to purchase that company's stock in order to match their index funds' composition to that of the S&P 500 index. In stock and mutual fund performance charts, the S&P 500 index is often used as a baseline for comparison. The chart will show the S&P 500 index, with the performance of the target stock or fund overlaid.
History Prior to 1957, the primary S&P stock market index consisted of only 90 companies, known as the S&P 90, and was published on a daily basis. A broader index of 423 companies was also published weekly. On March 4, 1957, a broad, real-time stock market index, the S&P 500 was introduced. This introduction was possible thanks to advances in computers, which could now calculate and disseminate the index in real-time. (See Detailed Timeline.) The S&P 500 is used widely as an indicator of the broader market, as it includes both NASDAQ "growth" stocks (grossly inflated and then deflated in the dot-com bubble and bust) and the less volatile "income" stocks of the Dow Jones Industrial Average listed on the NYSE. The index, near the height of the bubble, reached an all-time closing high of 1,527.46, and intra-day high of 1,553.11, on March 24, 2000. After that, the index eventually lost approximately 50% of its value, spiking below 800 in July 2002 and reaching a bear market low of 768.63 intra-day on October 10, 2002. Since then, the US stock markets have gradually recovered. However, during the week of October 2, 2006, when the DJIA set new record highs for the first time in nearly seven years, the S&P 500 (due to its breadth) remained well below its all-time closing high, leaving doubt regarding the start of a new secular bull market. As of late 2006, the S&P 500 remains more than 10% off its highs, but has achieved levels unseen since late 2000. Selection The names in the S&P 500 are selected by committee. This is similar to the Dow 30, but different from others such as the Russell 1000, which are strictly rules-based. Although the index includes many large companies in the US, it is not simply a list of the 500 biggest companies, and includes a handful (10 as of September 19, 2006) that are incorporated outside of the US and are therefore technically not US companies. The companies are carefully selected to ensure that they are representative of various industries in the US economy. In addition, companies that do not trade publicly (such as those that are privately or mutually held) and stocks that do not have sufficient liquidity are not in the index. By contrast, the Fortune 500 attempts to list the 500 largest companies in the United States by gross revenue, regardless of form of ownership or liquidity, without adjustment for industry representation, and excluding companies incorporated outside the US. Weighting The index was previously market-value weighted; that is, movements in price of companies whose total market valuation (share price times the number of outstanding shares) is larger will have a greater effect on the index than companies whose market valuation is smaller. The index has since been converted to float weighted; that is, only shares available for public trading ("float") are counted. The transition was made in two tranches, the first on March 18, 2005 and the second on September 16, 2005. (For example, only the Class A shares of Google ("GOOG") are publicly traded; thus, of the 207,096,000 Class A shares outstanding as of March 2006, only 199,570,000 shares are considered float, so only the value of the latter number of shares was used to incorporate Google into the S&P 500 on March 31, 2006.) Components For a list of companies, see the list of S&P 500 companies. Investing Apart from investing in the individual stocks in the S&P 500, there is also the possibility to invest in an exchange-traded fund (ETF) which represents ownership in a portfolio of the equity securities that comprise the Standard & Poor's 500 Composite Stock Price Index. This ETF is called the Standard & Poor's Depositary Receipts (SPDRs, pronounced "spiders"), and the ticker symbol is SPY. Typical volume for the SPDR is over 42 million shares per day, second only to QQQQ. There is also the lesser-known iShares S&P 500 (Symbol:IVV), which has a slightly lower management expense ratio, but is otherwise identical to the SPDRs. Rydex also offers an ETF, Rydex S&P Equal Weight (Symbol:RSP), which provides equal exposure to all the companies in the S&P 500. The relatively compact units of these ETFs represent an opportunity for the smaller investor to achieve a performance close to the S&P 500 Index (minus fees and expenses). They trade like any other stock on the AMEX, so they can be bought on margin, sold short, or held for the long term. Several mutual fund brokerages also provide index funds that track the S&P 500. Notable among them is The Vanguard Group's , which has over $100 billion USD in assets. Additionally, the Chicago Mercantile Exchange (CME) offers futures contracts on the S&P 500 index. S&P futures can be traded on the exchange floor in an open outcry auction, or on CME's Globex platform, though only E-mini contracts are traded during regular trading hours. See also | ||||||||
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