What is the S&P 500?
The S&P 500 is one of the most popular stock indexes in the world. It was created in 1957 by the company Standard and Poor’s – or S&P – which is how it got its name.
The S&P 500 is a way to measure the performance of the stock market as a whole by looking at a large group of stocks, instead of individual stocks. The stocks in the S&P 500 make up 80% of the total market value of the entire U.S. equities market. So when S&P 500 goes up or down in value, it’s a good indication of the direction of the overall stock market.
What are the stocks in the S&P 500?
The S&P 500 consists of stocks of 500 large companies listed on NYSE or NASDAQ, the 2 major stock exchanges in the United States. These 500 stocks called the S&P 500’s constituents or the S&P 500’s components, are good representatives of different industries like technology, health care, financials, communications, etc.
The 5 largest S&P 500 stocks are Apple, Microsoft. Amazon, Facebook and Alphabet – which owns Google.
What does the S&P 500’s value represent? Is it a dollar amount?
The S&P 500’s value is measured in points. When the S&P 500 was created in 1957, it had 100 points. As of September 2020, the S&P 500 has grown to almost 3,500 points.
For example, if stock A’s company has a market cap of $10 billion dollars, and stock B’s company has a market cap of $20 billion dollars, then stock B would have double the weight – or power to change the value of the S&P 500 – as stock A, because it has double the market cap.
Can the S&P 500’s constituents change, or do they stay the same?
The S&P 500 was created to correctly represent the stock market as a whole. So its components do change from time to time depending on the changes in the stock market.
If the S&P 500 goes up or down, does it mean all its stocks have gone up or down in value?
No. The change in the S&P 500’s value is a combined effect of the changes in the market cap of all its stocks.