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S&P 500 or Standard and Poor 500
S&P 500 is often abbreviated as Standard and Poor 500 or just S&P. This is an American Stock Market which is totally based on the phenomena or method called “Market Capitalization”. Actually, it is an Index which contains 500 large companies. We can use S&P Dow Jones Indices to determine the weightings of S&P 500 index components. This stock index is different from other stock market indices in the United States like NASDAQ composite and Dow Jones Industrial Average. S&P is different from Dow Jones and NASDAQ due to its two features first one is weighting methodology and second is Diverse Consistency. Most of the peoples consider this index the best representation of United States stock market because it is the most followed equity indices in the United States. Some traders also called it Bellwether of United States Economy. Companies which are included in the index are of high standards and these companies are selected by a committee of the index which is called “S&P 500 Index Committee“. This committee includes numbers of Analysts and Economists. S&P Dow Jones Indices which is owned by McGraw Hill Financial developed and maintained this index S&P 500.S&P Composite 1500 and Dow Jones Industrial Average are also published and maintained by S&P Dow Jones Indices. This contains many ticker symbols such as INX, $SPX and it is a Free-Float Capitalization Weighted Index.
The S&P 500, or the Standard & Poor’s 500, is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor’s. It differs from other U.S. stock market indices such as the Dow Jones Industrial Average and the NASDAQ due to its diverse constituency and weighting methodology. It is one of the most commonly followed equity indices and many consider it the best representation of the market as well as a bellwether for the U.S. economy. The National Bureau of Economic Research has classified common stocks as a leading indicator of business cycles.
History of S&P 500
In 1923, Standard and Poor’s introduced his first stock. Before 1957 its primary daily stock market index was the “S&P 90”, a value-weighted index based on 90 stocks. Standard & Poor’s also published a weekly index of 423 companies. The S&P 500 Index in its present form began on March 4, 1957. Technology has allowed the index to be calculated and disseminated in real time. The S&P 500 is widely employed as a measure of the general level of stock prices, as it includes both growth stocks and the generally less volatile value stocks. In this real-time technology allowed the Index to be disseminated and calculated. S&P 500 contains both value stocks and growth stocks so that’s why it is widely used for the measurement of general level prices of the stocks. Standard and Poor’s made his first agreement with Ultronics System Corp. in 1962.Ultronics System Corp. computed all the Indexes such as S&P 500 Stock Composite Index, 25 StockRail indexes and 425 stock industrial index under the terms and conditions of the agreement which was made in 1962.Ultronics System Corp. also computed the sub-indexes of S&P 500 such as 94 S&P sub-indexes.
After great struggle this index first time closed at 102 on 12, August 1982.After all on 24, March 2000 during the dot-com bubble, this index reached the peak and this success was not exceeded over 7 years. On October 10, 2002, during the stock market downturn, this index declined approximately 50%. On 30, May 2007 this index was closed on 1530 and this is the great success of this index in all time. After all, this index achieved a new all-time success in his history when on 11, October 2007 the index reached the peak value which is 1576.This success is only for one month or less than one month. After that, it is dropped to 1400 and not reached the similar level again in 4 years. In 2007 Subprime mortgage crisis spread in the whole United states and which also damage the United States Financial Sector and, as a result, the index closed on 752. In mid-2007 difficulties stemming from unregulated investment banking and derivatives spread to the wider financial sector, resulting in the second bear market of the 21st century. The resulting crisis became acute in September 2008, ushering in a period of unusual volatility, encompassing record 100-point moves in both directions and reaching the highest levels since 1929. On November 20, 2008, the index closed at 752.44, it’s lowest since early 1997. A modest recovery the following day still left the index down 45.5% for the year. This year-to-date loss was the greatest since 1931, when the broad market declined more than 50%; the total losses that ushered in the Great Depression exceeded 80% over a three-year period. The market continued to decline between late 2008 and early 2009 surrounding the events involving the financial crisis of 2008, reaching a nearly 13-year closing low at 676.53 on March 9, 2009. On March 23, 2009, the S&P 500 hit 822.92, marking a 20% gain. The Dow Jones Industrial Average soon followed. Although the markets continued to experience significant volatility amid electoral and fiscal uncertainty, gains continued, and the 2012 close of the S&P 500 following QE3 was its third-highest ever, at 1,426.22 points. On March 28, 2013, it closed above the closing high from 2007. On April 10, it also closed above the intraday high from 2007. On May 3, 2013, more than thirteen years since its first close above 1500, the S&P 500 closed above 1600 for the first time, closing at 1,614.42. On July 22, 2013, the S&P 500 set its current all-time intraday high of 1,697.61, as well as its record close of 1,695.53 points. After all on 23, May 2014 index is closed above 1500.This happens after 13 years from its first close. Then on 17 February 2015, this index is closed above 2000 and later on in 2015 the index reached the price level of 2130.This price level is the highest price level for the creation of this index and then till now.
S&P 500 Selection Criteria
In S&P 500 index there is a committee who select the companies or components for the index. This is different from Russell 1000 which is strictly rule-based and similar to Dow Jones Industrial Average. When Standard and Poor’s is going to add any new component in his index then their committee access the company’s merit using primary criteria such as Market capitalization of the company, Public Float, and sector classification etc. These primary criteria consist of 8 methods or components. As S&P 500 is a great representative of industries in United states so the committee of Standard and Poor’s selects the company which has a higher standing in the United States. The company is only when added to the index when company satisfies these requirements of standard and poor’s which are as follows.
- Market Capitalization of the company must be greater than or equal to 3.5 Billion United States Dollars.
- Float Adjusted market capitalization must be equal to or greater than 1.0.
- The company must trade 250,000 shares in every six months.
It is a must for every company that his Securities must be publicly added to either NASDAQ or NYCE. Some securities are ineligible in this index such as Limited Partnerships, Close-end fund, and ETFs. This index includes United States companies and also Non-United states companies and firms which have never incorporated in the United States.
Investing in S&P 500
The performance of S&P 500 by holding the same stock as the index is in the same proportions just like lots of other Exchange-Traded funds and index funds. Lots of other funds are benchmarked to S&P 500.All the companies can see their stock price raise or fall when their stock is added to the list of S&P 500.In the case of index fund must purchase company’s stock for the purpose of continuous tracking of S&P 500 index. Index funds are provided by Mutual Funds manages and the purpose of providing these index funds is to Track S&P 500.This was first time recorded in 1976 by The Vanguard Groups Vanguard 500.It is a must for the investors to purchase shares of an Exchange-Traded fund if the investors want to invest in mutual funds indexed in S&P 500.
ETF or Exchange-Traded funds represent ownership of the investor in a portfolio of the equity securities that comprise the S&P 500 index and Exchange-Traded funds also track the standard and poor’s 500 indexes, this tracking may be used for the purpose of trading in the index. In Landon stock exchange S&P 500 ETFs or Exchange Traded funds are available. Also, there is another way or method is available in S&P 500 which is called Index Investing, using this method investors can invest in all stocks directly. Chicago Mercantile Exchange which is also called CME offers the variety of future contracts in the derivative market that track the index and also trade on the exchange floor. Chicago Board Options exchange or CBOE also offers lots of option on S&P 500 ETFs and also on S&P 500.