This article needs to be updated.(November 2023)
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of December 31, 2021, according to surveys, more than $7.1 trillion was invested in assets tied to the performance of the index.
|Foundation||March 4, 1957|
|Operator||S&P Dow Jones Indices|
|Market cap||US$33.8 trillion|
(as of December 31, 2022)
|Weighting method||Free-float capitalization-weighted|
The S&P 500 index is a free-float weighted/capitalization-weighted index. As of September 30, 2023, the nine largest companies on the list of S&P 500 companies accounted for 30.6% of the market capitalization of the index and were, in order of highest to lowest weighting: Apple, Microsoft, Amazon.com, Nvidia, Alphabet (including both class A & C shares), Tesla, Meta Platforms, Berkshire Hathaway and ExxonMobil. The components that have increased their dividends in 25 consecutive years are known as the S&P 500 Dividend Aristocrats.
The index is one of the factors in computation of the Conference Board Leading Economic Index, used to forecast the direction of the economy. The index is associated with many ticker symbols, including ^GSPC,. INX, and $SPX, depending on market or website. The S&P 500 is maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global, and its components are selected by a committee.
Investing in the S&P 500 edit
Mutual and exchange-traded funds edit
Index funds, including mutual funds and exchange-traded funds (ETFs), can replicate, before fees and expenses, the performance of the index by holding the same stocks as the index in the same proportions. ETFs that replicate the performance of the index are issued by The Vanguard Group (NYSE Arca: VOO), iShares (NYSE Arca: IVV), and State Street Corporation (NYSE Arca: SPY and NYSE Arca: SPLG). The most liquid based on average daily volume is (NYSE Arca: SPY), although SPY has a higher annual expense ratio of 0.09% compared to 0.03% for VOO and IVV, and 0.02% for SPLG. Mutual funds that track the index are offered by Fidelity Investments, T. Rowe Price, and Charles Schwab Corporation.
Direxion offers leveraged ETFs which attempt to produce three times the daily return of either investing in (NYSE Arca: SPXL) or shorting (NYSE Arca: SPXS) the S&P 500 index. ProShares offers SSO (2x daily return) and UPRO (3x daily return).
In the derivatives market, the Chicago Mercantile Exchange (CME) offers futures contracts that track the index and trade on the exchange floor in an open outcry auction, or on CME's Globex platform, and are the exchange's most popular product. The Chicago Board Options Exchange (CBOE) offers options on the S&P 500 index as well as on S&P 500 index ETFs, inverse ETFs, and leveraged ETFs.
In 1860, Henry Varnum Poor formed Poor's Publishing, which published an investor's guide to the railroad industry. In 1923, Standard Statistics Company (founded in 1906 as the Standard Statistics Bureau) began rating mortgage bonds and developed its first stock market index consisting of the stocks of 233 U.S. companies, computed weekly. Three years later, it developed a 90-stock index, computed daily. In 1941, Poor's Publishing merged with Standard Statistics Company to form Standard & Poor's.
On Monday, March 4, 1957, the index was expanded to its current 500 companies and was renamed the S&P 500 Stock Composite Index. In 1962, Ultronic Systems became the compiler of the S&P indices including the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. On August 31, 1976, The Vanguard Group offered the first mutual fund to retail investors that tracked the index. On April 21, 1982, the Chicago Mercantile Exchange began trading futures based on the index. On July 1, 1983, Chicago Board Options Exchange began trading options based on the index. Beginning in 1986, the index value was updated every 15 seconds, or 1,559 times per trading day, with price updates disseminated by Reuters.
On January 22, 1993, the Standard & Poor's Depositary Receipts exchange-traded fund issued by State Street Corporation began trading. On September 9, 1997, CME Group introduced the S&P E-mini futures contract. In 2005, the index transitioned to a public float-adjusted capitalization-weighting. Friday, September 17, 2021, was the final trading date for the original SP big contract which began trading in 1982.
Selection criteria edit
Like other indices managed by S&P Dow Jones Indices, but unlike indices such as the Russell 1000 Index which are strictly rule-based, the components of the S&P 500 index are selected by a committee. When considering the eligibility of a new addition, the committee assesses the company's merit using the following primary criteria:
- Market capitalization - Market capitalization must be greater than or equal to US$14.5 billion. The market cap eligibility criteria are for addition to an index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to that index is not removed unless ongoing conditions warrant an index change.
- Market liquidity and public float – Annual dollar value traded to float-adjusted market capitalization is greater than 0.75.
- Volume – Minimum monthly trading volume of 250,000 shares in each of the six months leading up to the evaluation date
- Stock exchange – Must be publicly listed on either the New York Stock Exchange (including NYSE Arca or NYSE American) or NASDAQ (NASDAQ Global Select Market, NASDAQ Select Market or the NASDAQ Capital Market).
- Domicile – The company must have its primary listing on a U.S. exchange, be subject to U.S. securities laws and derive at least 50% of its revenue in the U.S.
- Securities that are ineligible for inclusion in the index are limited partnerships, master limited partnerships and their investment trust units, OTC Bulletin Board issues, closed-end funds, exchange-traded funds, Exchange-traded notes, royalty trusts, tracking stocks, preferred stock, unit trusts, equity warrants, convertible bonds, investment trusts, American depositary receipts, and American depositary shares.
In October 2021, Bloomberg News reported that a study alleged that some companies purchase ratings from S&P Global to increase their chances of entering the S&P 500 Index—even without meeting the full criteria for inclusion.
Since its inception in 1926, the index's compound annual growth rate—including dividends—has been approximately 9.8% (6% after inflation), with the standard deviation of the return over the same time period being 20.81%. While the index has declined in several years by over 30%, it posts annual increases 70% of the time, with 5% of all trading days resulting in record highs.
Price history & milestones edit
Launched by the Standard Statistics Company in 1926 as the successor to its 1923 233-stock weekly index, the Composite Stock Index was a daily 90-stock index that preceded the S&P 500. Following continual daily closure records from 17.66 in December 1927 to 31.71 in August 1929, the Wall Street Crash of 1929 began a trend of daily closure losses that would see the index fall to a record low of 4.43 by June 1932. While the index saw a degree of recovery in subsequent years, closing at 18.09 in February 1937, it would not surpass its pre-depression record until its closure at 32.31 in September 1954.
In March 1957 the index was expanded to its current 500-stock structure and renamed the S&P 500 Stock Composite Index. Subsequently, closing beyond 50 for the first time in September 1958, the continued post-World War II boom in the United States would see the index nearly double to a closing price of 94.06 on February 9, 1966. The subsequent 1970s bull market and early 1980s bull depression would slow growth of the index for over a decade. As a result of the mid-1980s bull market, the index would more than triple from 102.42 on August 12, 1982, to 336.77 on August 25, 1987. The subsequent stock market crash on October 19, 1987 (Black Monday) saw the index lose 20.47% of its value, its highest daily percentage loss to date. Falling to 230.30 by November 1987, the index would take until July 26, 1989, to recover to its pre-crash high of 336.77.
Closing above 500 for the first time on March 24, 1995, the dot-com bubble of the late 1990s fueled increased market growth through the turn of the millennium, with the S&P 500 surpassing 800 on February 12, 1997, and 1,000 on February 2, 1998, with an intraday high of 1,552.87 on March 24, 2000. As a result of the 2002 stock market downturn, the index fell to 768.83 by October 10, 2002, and would take until October 11, 2007, to surpass its March 2000 intraday trading high. While a brief bull market in 2007 saw the index achieve new record closures of 1,530.23 on May 30 through to 1,565.15 on October 9, the bursting of the United States housing bubble caused mortgage-backed securities to collapse in value, precipitating a financial crisis and global recession. These events, including the bankruptcy of Lehman Brothers, caused substantial market volatility that resulted in the S&P 500 closing up or down 3 percent or more 29 times in the fourth quarter of 2008. This included an increase of 11.6% on October 13, 2008, the index's highest daily percentage gain to date.
In the year since its record closure of 1,565.15 in October 2007, the index fell by over 50% to 752.44 on November 20, 2008, its lowest point since March 1997. Closing the year at 903.25—a yearly loss of 38.5%—the index continued to decline in the first quarter of 2009, with the 2007-2009 bear market reaching a trough of 666 on March 6, 2009. The drawdown from the high in October 2007 to the low in March 2009 was 56.8%, the largest since World War II. Despite this, the index recovered substantially in the following year, closing at 822.92 on March 23, 2009, and at 1,115.10 by the end of the year, making 2009 the index's second-best year of the decade. On April 14, 2010, the index closed at 1,210.65, its first close above 1,200 since August 2008.
The index subsequently experienced a degree of volatility, falling to 1,022.58 by July 2, 2010, rising to 1,363.61 by April 29, 2011, and falling again below 1,100 by October 4, 2011, the latter due to the August 2011 stock markets fall. While this period of volatility continued into 2012 amid electoral and fiscal uncertainty and round 3 of quantitative easing, the index closed the year at 1,426.19, an annual gain of 13% and its biggest gain in 3 years. On March 28 and April 10, 2013, the index's October 2007 closing and intraday trading highs, respectively, were surpassed for the first time, recovering all losses incurred during the Great Recession. The index surpassed 2,000 for the first time on August 26, 2014, reaching an all-time closing high of 2,130.82 on May 21, 2015. It would not be surpassed until July 11, 2016, due to a market decline precipitated by the 2015–2016 stock market selloff and 2015–2016 Chinese stock market turbulence. The index surpassed 2,500 on September 25, 2017, finishing the year up 19.4%, its best since 2013.
The index rose for the tenth month running in January 2018, falling 4% the next month in part due to the doubling of market volatility on February 5. Following a strong third quarter and a weak fourth quarter, the year ended with the index declining by 6%, its worst year in a decade. High market growth in the next two quarters reversed the prior year's losses by April 2019, with the index surpassing 3,000 on July 10. The index closed the year with a growth rate of 28.9%, among its best to date. While the index reached a new closing peak of 3,386.15 on February 19, 2020, the onset of the COVID-19 pandemic and recession saw it lose 10% of its value in the next six trading days, its fastest drop from a new peak to date. At the trough of the 2020 stock market crash on March 23, 2020, the index had fallen 34% from its February peak. While the index fell by 20% by the end of the first quarter, its worst since 2008, it realized a 20% gain in the second quarter, its best since 1998. The index reached a new record high of 3,756.07 by the end of the year, closing above 4,000 for the first time on April 1, 2021. By the end of the year the index closed 70 of the year's 252 trading days at new record closing prices, the second highest to date behind the 77 recorded in 1995. 2021 also marked the first year since 2005 when the S&P 500 beat the other two closely watched U.S. stock indices: the Dow Jones Industrial Average and the Nasdaq Composite.
Returns by year edit
Returns are generally quoted as price returns (excluding returns from dividends). However, they can also be quoted as total return, which include returns from dividends and the reinvestment thereof, and "net total return", which reflects the effects of dividend reinvestment after the deduction of withholding tax.
See also edit
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