# S&P 500

S&P 500/stocks
S&P 500 Index from 1950 to 2012
Foundation 1957[1]
Operator Standard & Poor's[2]
Exchanges NYSE, NASDAQ
Constituents 500[2]
Type Large-cap[2]
Market cap US$14,199 billion (as of April 30, 2013)[1] Weighting method Free-float capitalization-weighted[3] Related indices Website S&P 500 Daily Linear Chart of S&P 500 from 1950 to 2013 A logarithmic chart of the S&P 500 using closing values from January 3rd, 1950 to April 15th, 2013. Logarithmic graph of the S&P 500 index with simple trend lines The S&P 500, or the Standard & Poor's 500, is a stock market index based on the market capitalizations of 500 leading companies publicly traded in the U.S. stock market, as determined by Standard & Poor's. It differs from other U.S. stock market indices such as the Dow Jones Industrial Average and the Nasdaq due to its diverse constituency and weighting methodology. It is one of the most commonly followed equity indices and many consider it the best representation of the market as well as a bellwether for the U.S. economy.[4] The National Bureau of Economic Research has classified common stocks as a leading indicator of business cycles.[5] The S&P 500 is maintained by Standard & Poor's, a division of McGraw-Hill that publishes a variety of other stock market indices such as the S&P MidCap 400, the S&P SmallCap 600 and the S&P Composite 1500. It is a free-float capitalization-weighted index[3] and has several ticker symbols: ^GSPC,[6] INX,[7] and$SPX.[8]

## History

Standard & Poor's introduced its first stock index in 1923. Before 1957 its primary daily stock market index was the "S&P 90", a value-weighted index based on 90 stocks. Standard & Poor's also published a weekly index of 423 companies. 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 employed as a measure of the general level of stock prices, as it includes both growth stocks and the generally less volatile value stocks.

The index reached an all-time intraday high (which was not exceeded for over seven years) of 1,552.87 in trading on March 24, 2000, during the dot-com bubble, after closing 1999 at 1,469.25 points, and then lost approximately 50% of its value in a two-year bear market, spiking below 800 points in July 2002 and reaching a low of 768.63 intraday on October 10, 2002 during the stock market downturn of 2002. The S&P 500 remained below its year-2000 all-time high somewhat longer than the popular Dow Jones Industrial Average and the more comprehensive Wilshire 5000. However, 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 made an 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 failed to make a new yearly closing high by less than one point, finishing 2007 at 1,468.36 points. This longer-term double top would prove to be ominous, as the index crashed below 1,400 in less than a month and would not see similar levels again for almost five years.

In mid-2007 difficulties stemming from unregulated investment banking and derivitives spread to the wider financial sector, resulting in the second bear market of the 21st century. The resulting crisis became acute in September 2008, ushering in a period of unusual volatility, encompassing record 100-point moves in both directions and reaching the highest levels since 1929.[9] On November 20, 2008, the index closed at 752.44, its lowest since early 1997.[10] 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%;[11] the total losses that ushered in the Great Depression exceeded 80% over a three-year period. The market continued to decline between late 2008 and early 2009 surrounding the events involving the financial crisis of 2008, reaching a nearly 13-year closing low at 676.53 on March 9, 2009.

On March 23, 2009, the S&P 500 hit 822.92, marking a 20% gain. The Dow 30 soon followed.[12] Although the markets continued to experience significant volatility amid electoral and fiscal uncertainty, gains continued, 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.[13] On April 10, it also closed above the intraday high from 2007.[14] On May 3, 2013, more than thirteen years since its first close above 1500, the S&P 500 closed above 1600 for the first time, closing at 1,614.42.

Highest close = 1,669.16 on May 21, 2013.

## Selection

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 rules-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.[3]

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 have a market capitalization of at least US$4.0 billion. When assessing liquidity, the committee reviews a company's ratio of annual dollar value traded to float-adjusted market capitalization with the requirement that the ratio is greater than 1.0. The company's stock should also maintain a minimum monthly trading volume of 250,000 shares in each of the six months leading up to the evaluation date.[3] 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 shares, unit trusts, equity warrants, convertible bonds, investment trusts, ADRs, ADSs and MLP IT units.[3] In contrast, the Fortune 500 attempts to list the 500 largest public companies in the United States by gross revenue, regardless of whether their stock trades publicly or their liquidity, without adjustment for industry representation, and excluding companies incorporated outside the United States. The index does include non-U.S. companies (21 as of December 24, 2012). This group includes both formerly U.S. companies that have reincorporated outside the United States, as well as firms that have never been incorporated in the United States. ## Components ## Versions The "S&P 500", generally quoted, is a price return index; there are also "total return" and "net total return" versions of the index. These versions differ in how dividends are accounted for. The price return version does not account for dividends; it only captures the changes in the prices of the index components. The total return version reflects the effects of dividend reinvestment. Finally, the net total return version reflects the effects of dividend reinvestment after the deduction of withholding tax.[15][16] ## Weighting The index has traditionally been capitalization-weighted; that is, movements in the prices of stocks with higher market capitalizations (the share price times the number of shares outstanding) have a greater impact on the value of the index than do companies with smaller market caps (e.g., Apple vs. Big Lots). The index is now float weighted. That is, Standard & Poor's now calculates the market capitalization of each company relevant to the index using only the number of shares available for public trading (called the "float"). This transition was made in two steps, the first on March 18, 2005 and the second on September 16, 2005.[17] ## Index maintenance In order to keep the S&P 500 Index comparable across time, the index needs to take into account corporate actions which affect market capitalization, such as share issuance, dividends and restructuring events such as mergers or spin-offs. Additionally, in order to keep the Index reflective of the U.S. stock market, the constituent stocks need to be changed from time to time.[3] To prevent the value of the Index from changing merely as a result of corporate financial actions, all such actions affecting the market value of the Index require a divisor adjustment. Also, when a company is dropped and replaced by another with a different market capitalization, the divisor needs to be adjusted in such a way that the value of the S&P 500 Index remains constant. All divisor adjustments are made after the close of trading and after the calculation of the closing value of the S&P 500 Index. There is a large range of different corporate actions that can require the divisor to be adjusted. These are listed in the table below:[18]  Type of Action Divisor Adjustment Stock Split (e.g. 2x1) No Share Issuance Yes Share Repurchase Yes Special Cash Dividend Yes Company Change Yes Rights offering Yes Spinoffs Yes Mergers Yes ## Calculation To calculate the value of the S&P 500 Index, the sum of the adjusted market capitalization of all 500 stocks is divided by a factor, usually referred to as the Divisor.[18] For example, if the total adjusted market cap of the 500 component stocks is US$13 trillion and the Divisor is set at 8.933 billion, then the S&P 500 Index value would be 1,455.28. Although the adjusted market capitalization of the entire index can be accessed from Standard & Poor's website,[1] the Divisor is considered to be proprietary to the firm. However, the Divisor 's value is approximately 8.9 billion. [19]

The formula to calculate the S&P 500 Index value is:

$\text{Index Level} = {\sum \left({P_i} \cdot {Q_i}\right) \over Divisor}$

where P is the price of each stock in the index and Q is the number of shares publicly available for each stock.

The divisor is adjusted in the case of stock issuance, spin-offs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the Index.[18]

## Update frequency

The index value is updated every 15 seconds during trading sessions and is disseminated by Reuters America, Inc., a subsidiary of Thomson Reuters Corporation.[20]

## Investing

Many index funds and exchange-traded funds attempt to replicate (before fees and expenses) the performance of the S&P 500 by holding the same stocks as the index, in the same proportions. Many other mutual funds are benchmarked to the S&P 500. Consequently, a company whose stock is added to the list of S&P 500 stocks may see its stock price rise, as the managers of index funds normally choose to purchase that company's stock in order to continue tracking the S&P 500 index. Mutual fund managers provide index funds that track the S&P 500, the first of which was The Vanguard Group's Vanguard 500 in 1976.[21] Many retirement plans offer such funds. For example, the Thrift Savings Plan's C Fund tracks the total return S&P 500 index.

In addition to investing in a mutual fund indexed to the S&P 500, investors may also purchase shares of an exchange-traded fund (ETF) which represents ownership in a portfolio of the equity securities that comprise the Standard & Poor's 500 Index. One of these ETF's is called the SPDR S&P 500 Trust ETF; NYSESPY, originating from a chain of ETFs called the SPDRs, pronounced "spiders", and is issued by SSgA State Street Global Advisors. Typical trading volume for the SPY SPDR averages between 100-200 million shares per day.

On October 10, 2008, trading volume for the SPY SPDR surpassed 871 million shares; with a closing price of $88.50, the monetary value of traded shares which changed hands exceeded an astounding$77 billion for the day.[22] BlackRock offers the iShares S&P 500 NYSEIVV, which is similar to the SPDRs, but is structured differently. Both the SPDRs and the iShares have a management expense ratio of under 0.1% a year; making them an efficient proxy for the underlying index, while achieving a performance close to the S&P 500 (minus fees and expenses).

In the table below you may see the list of other Exchange Traded Funds which track the S&P 500 index and which could be used to trade this index:

ETF Symbol ETF Name
VOO Vanguard S&P 500 INDEX
IVI iShares S&P 500 VALUE INDEX
IVV iShares S&P 500 INDEX
IVW iShares S&P 500 GROWTH INDEX
SDS PROSHARES ULTRA-SHORT S&P 500
SH PROSHARES SHORT S&P 500
SPY SPDR S&P 500
SSO PROSHARES ULTRA S&P 500s

[23]

Through RydexShares, fund manager Rydex also offers an ETF, the S&P Equal Weight NYSERSP, which provides equal exposure to all the companies in the S&P 500. In addition, Rydex offers other related S&P 500 index ETFs such as the 2x NYSERSU, which attempts to match the daily performance of the S&P 500 by 200% and the Inverse 2x NYSERSW, which attempts to match the inverse daily performance by 200%. More heavily traded ProShares issued by ProFunds offer Inverse Performance NYSESH for a bearish strategy on the index, Inverse 2x Performance NYSESDS, and 2x Performance NYSESSO. For additional leverage, ProFunds also offers 3x Performance NYSEUPRO, which attempts to match the daily performance of the S&P 500 by 300% as well as Inverse 3x Performance NYSESPXU, which attempts to match the inverse daily performance of the S&P 500 by 300%.

In the derivatives market, the Chicago Mercantile Exchange (CME) offers futures contracts that track the index and trade on the exchange floor in an open outcry auction, or on CME's Globex platform, and are the exchange's most popular product. Additionally, the Chicago Board Options Exchange (CBOE) offers options on the S&P 500 as well as S&P 500 ETFs, inverse ETFs and leveraged ETFs.

## Market statistics

### Milestones

On 11 October 2007, S&P index set a milestone with its "all-time intraday high of 1,576.09."[24] recovering all its losses from the financial crisis. On 28 March 2013 the S&P finally surpassed its closing high level of 1,565.15 recovering all its "losses from the financial crisis."[24]

### Total annual returns

Year Change in Index Total Annual Return Including Dividends Value of $1.00 Invested on 1/1/1970 5 Year Annualized Return 10 Year Annualized Return 15 Year Annualized Return 20 Year Annualized Return 25 Year Annualized Return 1970 0.01% 4.01%$1.04 - - - - -
1971 10.79% 14.31% $1.19 - - - - - 1972 15.63% 18.98%$1.41 - - - - -
1973 −17.37% −14.66% $1.21 - - - - - 1974 −28.72% −26.47%$0.89 −2.35% - - - -
1975 31.55% 37.20% $1.22 3.21% - - - - 1976 19.15% 23.84%$1.51 4.87% - - - -
1977 −11.50% −7.18% $1.40 −0.21% - - - - 1978 1.06% 6.56%$1.49 4.32% - - - -
1979 12.31% 18.44% $1.77 14.76% 5.86% - - - 1980 25.77% 32.50%$2.34 13.96% 8.45% - - -
1981 −9.73% −4.92% $2.23 8.10% 6.47% - - - 1982 14.76% 21.55%$2.71 14.09% 6.70% - - -
1983 17.26% 22.56% $3.32 17.32% 10.63% - - - 1984 1.40% 6.27%$3.52 14.81% 14.78% 8.76% - -
1985 26.36% 31.73% $4.64 14.67% 14.32% 10.49% - - 1986 14.62% 18.67%$5.51 19.87% 13.83% 10.76% - -
1987 2.03% 5.25% $5.80 16.47% 15.27% 9.86% - - 1988 12.40% 16.61%$6.76 15.31% 16.31% 12.17% - -
1989 27.25% 31.69% $8.90 20.37% 17.55% 16.61% 11.55% - 1990 −6.56% −3.10%$8.63 13.20% 13.93% 13.94% 11.16% -
1991 26.31% 30.47% $11.26 15.36% 17.59% 14.34% 11.90% - 1992 4.46% 7.62%$12.11 15.88% 16.17% 15.47% 11.34% -
1993 7.06% 10.08% $13.33 14.55% 14.93% 15.72% 12.76% - 1994 −1.54% 1.32%$13.51 8.70% 14.38% 14.52% 14.58% 10.98%
1995 34.11% 37.58% $18.59 16.59% 14.88% 14.81% 14.60% 12.22% 1996 20.26% 22.96%$22.86 15.22% 15.29% 16.80% 14.56% 12.55%
1997 31.01% 33.36% $30.48 20.27% 18.05% 17.52% 16.65% 13.07% 1998 26.67% 28.58%$39.19 24.06% 19.21% 17.90% 17.75% 14.94%
1999 19.53% 21.04% $47.44 28.56% 18.21% 18.93% 17.88% 17.25% 2000 −10.14% −9.10%$43.12 18.33% 17.46% 16.02% 15.68% 15.34%
2001 −13.04% −11.89% $37.99 10.70% 12.94% 13.74% 15.24% 13.78% 2002 −23.37% −22.10%$29.60 −0.59% 9.34% 11.48% 12.71% 12.98%
2003 26.38% 28.68% $38.09 −0.57% 11.07% 12.22% 12.98% 13.84% 2004 8.99% 10.88%$42.23 −2.30% 12.07% 10.94% 13.22% 13.54%
2005 3.00% 4.91% $44.30 0.54% 9.07% 11.52% 11.94% 12.48% 2006 13.62% 15.79%$51.30 6.19% 8.42% 10.64% 11.80% 13.37%
2007 3.55% 5.49% $54.12 12.83% 5.91% 10.49% 11.82% 12.73% 2008 −38.47% −37.00%$34.09 −2.19% −1.38% 6.46% 8.43% 9.77%
2009 23.49% 26.46% $43.11 0.42% −0.95% 8.04% 8.21% 10.54% 2010 12.64% 15.06%$49.61 2.29% 1.41% 6.76% 9.14% 9.94%
2011 0.00% 2.11% $50.65 −0.25% 2.92% 5.45% 7.81% 9.28% 2012 13.29% 16.00%$58.76 1.66% 7.10% 4.47% 8.22% 9.71%
High 34.11% 37.58% 28.56% 19.21% 18.93% 17.88% 17.25%
Low −38.47% −37.00% −2.35% −1.38% 4.47% 7.81% 9.28%
CAGR   9.94%
Median 12.40% 15.06%   13.20% 13.38% 12.17% 12.32% 12.73%

## References

1. ^ a b c "S&P 500 Details". Standard & Poor's. Retrieved January 20, 2013.
2. ^ a b c "S&P 500 Overview". S&P/Dow Jones Indices LLC. Retrieved January 20, 2013.
3. "S&P U.S. Indices Methodology". Standard & Poor's. Retrieved April 30, 2013.
4. ^ "Standard & Poor's 500 Index - S&P 500". Investopedia. Retrieved 11 June 2012.
5. ^ Edward Renshaw, The Stock Market, Oil Price Shocks, Economic Recessions and the Business Cycle With An Emphasis on Forecasting, December 2002
6. ^
7. ^
8. ^
9. ^ S&P 500 actual volatility at highest since 1929
10. ^ Stocks Plunge, Leaving Dow Below 7600
11. ^ Sommer, Jeff (2008-11-23). "A Friday Rally Can't Save the Week". The New York Times.
12. ^ Peter Mckay, Geoffrey Rogow and Rob Curran (March 26, 2009). "Stocks' Momentum Keeps Building". The Wall Street Journal. Retrieved 4 April 2013.
13. ^ S&P 500 Closes At All-Time High
14. ^ Dow and S&P 500 close at new record highs
15. ^
16. ^
17. ^ "Standard & Poor's Announces Changes to U.S. Investable Weight Factors and Final Float Transition Schedule". PRNewswire. 2005-03-09. Retrieved 2013-01-20.
18. ^ a b c "S&P Indices Index Mathematics Methodology". The McGraw-Hill Companies, Inc. Retrieved January 20, 2013.
19. ^ "How is the value of the S&P 500 calculated?". Retrieved January 20, 2013.
20. ^
21. ^
22. ^ AMEX:SPY daily prices for the week of October 6, 2008 from Yahoo! Finance
23. ^
24. ^ a b Park, JeeYeon. "Record-Smashing Quarter: S&P 500 Ends Above 2007’s Record Close, Dow Posts Best Q1 Since 1998". CNBC.com Writer. Retrieved 2013-03-28.