What is the S&P 500 (Standard and Poor’s 500)?

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.

The point value of the S&P 500 is calculated using a market capitalization-weighted formula. This means that each stock’s weight in the index is decided by the market capitalization of the company.

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.

What are some other popular stock indexes?

Some other popular stock indexes include the Dow jones industrial average, NASDAQ, and FTSE. Click on the videos to learn more.

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