S&P500

The S&P 500 Index

deltafx writer 18 July 2021

The S&P 500 index, which stands for the Standard & Poor’s 500 Index, tracks the stocks of 500 large-cap U.S. companies. This index represents the stock market’s performance by highlighting the returns and risks of these large 500 companies. S&P 500 accounts for 80% of market value, which is why it is the best single gauge of the market.

This index is weighted by market capitalization, and the value of each company has a unique influence on the index performance. So, the listed companies do not represent 1/500th of the index. Some large companies such as Apple and Microsoft have a more significant effect on the index than smaller ones. Although the companies in the list are almost the top 500 American companies based on their value, the market cap of some big companies is more than 1 trillion dollars, which is 200 times larger than the small companies in this index.

The S&P 500 is a member of the S&P 1200 indices group. S&P 400 MidCap includes mid-cap range companies, and the S&P SmallCap 600, contains smaller companies. A combination of S&P 500, S&P MidCap 400 and S&P SmallCap 600 create the S&P 1500 Composite representing the U.S. all-cap index.

History

This index was introduced by the Standard and poor company in 1923. The founder of this company was Henry Varnum Poor, who could establish the company earlier in 1860. In the beginning, the number of stocks that were tracked by this index was so low. Gradually they could expand their activities and cover more stocks. After years of hard work and gaining investors’ trust, in 1957, they could increase the number of companies to 500. In the same year, they changed the name of this index from the “composite index” to the “S&P 500 index”.

the S&P 500 index

Companies listed in the S&P 500 index

There are 505 stocks in this index which 500 companies issue them. Some of the companies, such as Alphabet, issued more than one type of stock. This explains why the number of stocks is more than the number of companies.

There are several conditions for companies to qualify for the index. They must be in the U.S., and their market cap must be more than 8.2 billion dollars. Their stock price must be at least one dollar per share. At least 50% of the companies’ stocks must be publicly available for people. Companies must file 10-k annual reports. More than half of companies fixed assets must be in the United States. And they must have at least four consecutive quarters of positive earnings.

Here you can see a list of the top 10 companies in the S&P 500 index. This list was introduced on May 31, 2021, but it changes over time.

  • Apple Inc. (AAPL) – market cap: 1,966 billion dollars
  • Microsoft Corp. (MSFT) – market cap: 1,883 billion dollars
  • Amazon.com, Inc. (AMZN) – market cap: 1,379 billion dollars
  • Facebook, Inc. (FB) – market cap: 790 billion dollars
  • Alphabet Inc. Class A (GOOGL) – market cap: 708 billion dollars
  • Alphabet Inc. Class C (GOOG) – market cap: 695 billion dollars
  • Berkshire Hathaway Inc. (BRK.B) – market cap: 551 billion dollars
  • JPMorgan Chase & Co. (JPM) – market cap: 501 billion dollars
  • Tesla, Inc. (TSLA) – market cap: 480 billion dollars
  • Johnson and Johnson (JNJ) – market cap: 444 billion dollars

S&P 500 contains 11 sections of the U.S. market. The order of these 11 sectors based on their sizes is as follows: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Real Estate, and Materials.

How Is the S&P 500 index Calculated?

S&P 500 is weighted by market capitalization, and it is continuously float-adjusted. It means that the index is constantly recalculated based on the price and number of shares. This index calculated every addition and deletion of shares by companies.

Market capitalization is calculated by multiplying the number of shares by the market price of one share of a company. S&P only considers publicly traded shares for calculations.  To calculate the S&P 500 index, first, we should calculate the market capitalization of each company. The sum of all of these 500 market capitals equals the total market capitalization of the entire index. The value of the index is calculated by dividing the market cap of each company with a particular divisor that is not publicly available.

S&P 500 vs Other Stock Market Indexes

Although the Dow Jones includes 30 of the largest U.S. companies, the S&P has more large-cap stocks. The Dow Jones index market capitalization accounts for one-fourth of the U.S. stock market. Dow Jones is also the most quoted market indicator in the U.S., but the S&P 500 is more accurate than Dow. Compared to Nasdaq, S&P 500 tracks fewer technology-related stocks. In 2020, about 57% of Nasdaq index stocks were related to technology. However, this figure was about 23% for S&P 500 at the same time. These indexes have many differences, but they all move together. If you only focus on one of them, you can easily guess the situation of other indexes.

Investing in the S&P 500 index

You cannot invest in S&P directly, but you can mimic its performance with an index fund. You can purchase shares of mutual funds or exchange-traded funds (ETF), which track this index. According to the legendary investor, Warren Buffet, the S&P 500 can deliver 9-10% yearly profit. So, over long periods and by investing correctly, you can make a good profit.

By investing in the S&P 500, you can get broad exposure to the profitability of the U.S. market. You can also buy the shares of the companies which are listed in the index. To buy and sell these stocks, you must first find a reputable broker that offers the shares of the companies that are currently in the S&P 500 index. DeltaFX is a reliable broker which provides you with many services and opportunities to trade these stocks. Open an account right now to invest in different markets.

Conclusion

Investors and traders usually focus on the S&P 500 index to evaluate the stock market situation. So, it is safe to say that this index is recognized as the leading U.S. economic indicator. It tracks a mixture of 500 large-cap American companies, which reflect the economic structure of the United States. Many people, including famous investors and amateur young people, use different methods to profit by looking at this index. So, considering the stability of the U.S. economy and the great S&P 500 annual returns, you should think about investing in it.

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