The S&P 500 is the most widely followed benchmark for the US stock market. It tracks the performance of 500 of the largest publicly traded companies listed on the New York Stock Exchange and Nasdaq, giving investors a clear picture of corporate America.
What Does S&P Stand For
S&P stands for Standard & Poor’s, a financial services firm founded in the 19th century. The index itself was created in 1957 and is maintained today by S&P Dow Jones Indices, a joint venture between S&P Global, the CME Group and News Corp.
How the S&P 500 Works
The S&P 500 is weighted by market capitalisation, so companies with the largest stock market values have the greatest influence on its movements. At present, Apple, Microsoft, Nvidia, Amazon and Alphabet together account for more than a quarter of the index.
The index covers all major sectors of the US economy, from technology and healthcare to energy and consumer goods. It is often used as a benchmark for US equity funds and as a proxy for the overall strength of the American market.
Why the S&P 500 Matters
The S&P 500 is seen as the best single gauge of US equities because it captures about 80 per cent of total US stock market capitalisation. Its performance influences pension funds, index-tracking ETFs and investment strategies around the world.
When the S&P 500 rises, it is generally viewed as a sign of optimism about the US economy. A decline suggests investors are more cautious or concerned about growth, interest rates or earnings.
Other S&P Indices
Alongside the flagship S&P 500, S&P Dow Jones Indices manages a wide family of benchmarks, including:
- S&P MidCap 400: tracks medium-sized US companies.
- S&P SmallCap 600: follows smaller firms.
- S&P Composite 1500: combines the 500, 400 and 600 for a broad picture of US equities.
- S&P Global 1200: a worldwide benchmark covering seven regional indices.
Putting it Together
The S&P 500 is more than just a number scrolling across a trading screen. It is the reference point for global investors, a measure of confidence in the US economy and the foundation for countless investment products. For many, it is the definitive barometer of the world’s most important stock market.
Frequently Asked Questions
Still have questions about the S&P 500? Here are some quick answers to the most common ones.
Can I Invest In The S&P 500 Directly?
You can’t invest buy the S&P 500 directly, but you can still invest in its performance. Here’s how:
Exchange-Traded Funds (ETFs): These operate like baskets holding small portions of all 500 S&P companies. Investing in an ETF allows your investment to mirror the overall market movement of the index.
Contracts for Difference (CFDs): This is a complex and potentially risky strategy best suited for experienced investors. CFDs let you speculate on the price movements of the S&P 500.
Spread Betting: Similar to CFDs, spread betting allows you to speculate on price movements of the S&P 500. However, spread betting is a tax-efficient option in some regions, but again, carries significant risk.
Futures Contracts: These are agreements to buy or sell the S&P 500 contracts at a predetermined price on a specific future date. Futures are complex instruments used for hedging or speculation and require a deep understanding of the market.
Buying individual stocks: You can research and directly purchase shares in companies listed on the S&P 500.
How often does the S&P 500 change its members?
It is reviewed quarterly, but companies can be added or removed at any time if they no longer meet criteria.
Can foreign companies be included in the S&P 500?
Yes, provided they are US-listed and meet the index’s size and liquidity requirements.