The S&P 500, or the Standard & Poor’s 500, is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices. It differs from other U.S. stock market indices, such as the Dow Jones Industrial Average or the Nasdaq Composite index, because of its diverse constituency and weighting methodology. It is one of the most commonly followed equity indices, and many consider it one of the best representations of the U.S. stock market, and a bellwether for the U.S. economy. The National Bureau of Economic Research has classified common stocks as a leading indicator of business cycles.
The S&P 500 was developed and continues to be maintained by S&P Dow Jones Indices, a joint venture majority-owned by McGraw Hill Financial. S&P Dow Jones Indices publishes many stock market indices, such as the Dow Jones Industrial Average, S&P MidCap 400, the S&P SmallCap 600, and the S&P Composite 1500. It is a free-float capitalization-weighted index, and has many ticker symbols, such as: ^GSPC, INX, and $SPX.
Standard & Poor’s introduced its first stock index in 1923. 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 used as a measure of the general level of stock prices, as it includes both growth stocks and value stocks.
In September of 1962, Ultronic Systems Corp. entered into an agreement with Standard and Poor’s. Under the terms of this agreement, Ultronics computed the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. Throughout the market day, these statistics were furnished to Standard & Poor’s. In addition, Ultronics also computed and reported the 94 S&P sub-indexes. On August 12, 1982, the index closed at 102.42.
The index reached a relative intraday high—which was not exceeded for over seven years—of 1,552.87, on March 24, 2000, during the dot-com bubble. The index then declined by approximately 50%, to 768.63, on October 10, 2002, during the stock market downturn of 2002. On May 30, 2007, the S&P 500 closed at 1,530.23, to set its first all-time closing high in more than seven years. Although the index achieved a new all-time intraday high on October 11, 2007, at 1,576.09, following a record close of 1,565.15 on October 9, the index finished 2007 at 1,468.36 points—just below its 1999 annual close. Less than a month later, it dropped to 1,400, and would not see similar levels again for five years.
In mid-2007, the subprime mortgage crisis spread to the wider U.S. financial sector. The resulting situation became acute in September 2008, ushering in a period of unusual market volatility, encompassing record 100-point swings in both directions and reaching the highest levels since 1929. On November 20, 2008, the index closed at 752.44, its 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 market continued to decline from late 2008 to early 2009, surrounding the financial crisis of 2008. The index reached a nearly 13-year low, closing at 676.53, on March 9, 2009.
On March 23, 2009, the S&P 500 marked a 20% gain when it hit 822.92. The Dow Jones Industrial Average soon followed. The close for 2009 was 1,115.10, making it the second-best year of the decade. Gains continued despite significant volatility amid electoral and fiscal uncertainty, 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, 2013, it also closed above the intraday high from 2007.
On May 3, 2013—more than 13 years since its first close above 1,500—the S&P 500 closed above 1,600 for the first time, at 1,614.42. This would be the first of three 100-point milestones in 2013: 1,600 on May 3, 2013; 1,700 on August 1, 2013; and 1,800 on November 22, 2013. The S&P 500 closed out 2013 at a record high, finishing the December 31, 2013, trading day at 1,848.36. On May 23, 2014, the index for the first time closed above 1900, at 1900.53.
The components of the S&P 500 are selected by committee. This is similar to the Dow Jones Industrial Average, but different from others such as the Russell 1000, which are strictly rule-based. When considering the eligibility of a new addition, the committee assesses the company’s merit using eight primary criteria: market capitalization, liquidity, domicile, public float, sector classification, financial viability, length of time publicly traded and listing exchange.
The committee selects the companies in the S&P 500 so they are representative of the industries in the United States economy. In order to be added to the index, a company must satisfy these liquidity-based size requirements:
market capitalization is greater than or equal to US$ 4.0 billion
annual dollar value traded to float-adjusted market capitalization is greater than 1.0
minimum monthly trading volume of 250,000 shares in each of the six months leading up to the evaluation date.
The securities must be publicly listed on either the NYSE (NYSE Arca or NYSE MKT) or NASDAQ (NASDAQ Global Select Market, NASDAQ Select Market or the NASDAQ Capital Market). Securities that are ineligible for inclusion in the index are limited partnerships, master limited partnerships, OTC bulletin board issues, closed-end funds, ETFs, ETNs, royalty trusts, tracking stocks, preferred stock, unit trusts, equity warrants, convertible bonds, investment trusts, ADRs, ADSs and MLP IT units.
In contrast, the Fortune 500 is a mere list, not an index, of the 500 largest public companies in the United States ordered by gross revenue, regardless of whether their stock trades publicly (without public listing, the stock has essentially zero liquidity), without adjustment for industry representation, and excluding companies incorporated outside the United States.
The index includes non-U.S. companies (27 as of December 23, 2013), both formerly U.S.-incorporated companies that have re-incorporated outside the United States, as well as firms that have never been incorporated in the United States.