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S&P 500: Everything You Need to Know

S&P 500: Everything You Need to Know

Tracking the stocks of 500 large-cap U.S companies is possible in a stock market index called the S&P 500. By reporting the risks and returns of the biggest companies, the stock market’s performance is represented by it. To which all other investments are compared, the S&P 500 is used by investors as the benchmark of the overall market. 

Per year over the last 10 years, it has returned 9.49 percent. S&P is the name of two founding financial companies: Standard and Poor. 

How does S&P Works?

The index of the market capitalization of the companies is tracked by the S7P 500. The company has issued shares of stocks and the total value of it is called the market cap. By multiplying the numbers of shares issued by the stock price, the market cap can be calculated. Compared to a company whose market cap is $10 billion, a company that has a market cap of $100 billion receives 10 times the representation of it. A total of $23.5 trillion is the total market cap of the S&P 500. The market cap of the stock market is captured 80 percent of it. 

Using a float-adjusted cap, the index is weighted. The shares that are available to the public are the ones that are measured only. Those that are held by control groups, other companies, or government agencies are not included in the count. 

The index's 500 corporations are selected by a committee based on their industry, size, and liquidity. In March, June, September, and December, the index is rebalanced quarterly. A company must have a market cap of at least $6.1 billion and must be in the United States to qualify for the index. The public must have access to at least 50 percent of the corporation's stock and must be at least $1 per share for its stock price. The company’s fixed assets and revenue must have 50 percent in the United States. A 10-K annual report must be filed. Finally, there must positive earnings for at least four consecutive quarters. 

Business development companies and real estate investment trusts are what the S&P 500 includes. The New York Stock Exchange, NASDAQ, Investors Exchange, or BATS should be where the stocks must be listed. It should not be on the over-the-counter list or pink sheets. 

Compared to other Stock Market Indices, how is the S&P 500 different?

Compared to the Dow Jones Industrial Average, the S&P 500 has more large-cap stocks. The share price of 30 companies is tracked by the Dow and these companies’ best represent their industries. The U.S. stock market's almost one-quarter is what its market capitalization accounts for. In the world, the Dow is the most quoted market indicator. 

Compared to the NASDAQ, the S&P 500 has fewer technology-related stocks. Stocks of companies that are privately owned are also included in the NASDAQ. 

All these stocks indices tend to move together despite these differences mentioned. You will clearly understand how well the stock market is doing if you focus on one. To put it simply, it means you do not have to follow all three of it. 

S&P 500 History and Ownership

The Standard & Poor officially introduced the S&P 500 on March 4, 1957. In 1966, McGraw-Hill acquired it and the S&P Dow Jones Indices owns the S&P 500 now. This is a joint venture between News Corp, the owner of Dow Jones, CME Group, and McGraw Hill Financial. Over 1 million indices are published by the S&P Dow Jones Indices. 

How can you make money using the S&P 500?

You can mimic its performance with an S&P Index fund even if you can’t invest in the S&P. Shares of stocks that are in the S&P 500 can be also bought. According to the market cap, be sure to weight them in your portfolio as the S&P does.

To see how well the U.S. economy is doing, you should use the S&P 500 as a leading economic indicator. The investors will buy stocks if they are confident in the economy. What the savviest investors will think the economy will do in about six months can be predicted in the stock market according to some experts. 

You should follow the bond market aside from following the S&P 500. When bond prices go down, stock prices go down. Treasury bonds, municipal bonds, and corporate bonds are some of the different types of bonds. Some of the liquidity that keeps the U.S. economy liquidated are provided by bonds. Mortgage interest rates are their most important effect. Standard & Poor's also rates bonds to help you follow the bond market. 

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