S&P 500

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S&P 500
S&P500 (1950-12).jpg
S&P 500 Index from 1950 to 2012
Foundation 1957[1]
Operator S&P Dow Jones Indices[2]
Exchanges NYSE, NASDAQ
Constituents 501[3]
Type Large-cap[2]
Market cap US$ 16,700 billion
(as of March 31, 2014)[4]
Weighting
method
Free-float capitalization-weighted[5]
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.
Daily Volume in the S&P 500 Index.png
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 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.[6] The National Bureau of Economic Research has classified common stocks as a leading indicator of business cycles.[7]

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,[5] and has many ticker symbols, such as: ^GSPC,[8] INX,[9] and $SPX.[10]

History[edit]

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.[11]

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.[12] On November 20, 2008, the index closed at 752.44, its lowest since early 1997.[13] 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%.[14] 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.[15] 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.[16] On April 10, 2013, it also closed above the intraday high from 2007.[17]

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.

Record High S&P 500 Index Values (^GSPC)

Type Date Set Value
Highest Intraday April 4, 2014 1897.28
Highest Closing April 2, 2014 1890.90

Selection criteria[edit]

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.[5]

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:[5]

  • 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.[5]

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.

Components[edit]

Versions[edit]

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.[18][19]

Weighting[edit]

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.

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.[20]

Index maintenance[edit]

In order to keep the S&P 500 Index consistent over time, it is adjusted to capture corporate actions which affect market capitalization, such as additional share issuance, dividends and restructuring events such as mergers or spin-offs. Additionally, to remain indicative of the U.S. stock market, the constituent stocks are changed from time to time.[5]

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:[21]

Type of Action Divisor Adjustment
Stock split (e.g. 2×1) No
Share issuance Yes
Share repurchase Yes
Special cash dividend Yes
Company change Yes
Rights offering Yes
Spinoffs Yes
Mergers Yes

Calculation[edit]

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.[21] 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.[22]

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.[21]

Update frequency[edit]

The index value is updated every 15 seconds during trading sessions and is disseminated by Reuters America, Inc., a subsidiary of Thomson Reuters Corporation.[23]

Investing[edit]

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 index funds must 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.[24] 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. Exchange Traded Funds track the S&P 500 index and may be used to trade the index. Some S&P 500 ETFs are listed as follows.[25]

ETF Symbol ETF Name Expense Ratio
IVV iShares Core S&P 500 0.0700%
SPY SPDR S&P 500 0.1102%
VOO Vanguard S&P 500 0.0500%

S&P 500 ETFs are available on the London Stock Exchange e.g. iShares S&P 500 (LSEIUSA) and Vanguard S&P 500 (LSEVUSA). There is also a Japanese fund tracking the index (TYO: 1547).

In the derivatives market, the Chicago Mercantile Exchange (CME) offers futures contracts (ticker symbols /SP for the full-sized contract and /ES for the E-mini contract that is one-fifth the size of /SP) 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[edit]

Milestones[edit]

On 11 October 2007, S&P index set a milestone with its all-time intraday high of 1,576.09.[26] 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.[26] However, it would need to close well above the 2,000 level to set new inflation-adjusted highs (ignoring dividends) compared with its initial foray of the year 2000 above the 1,500 level.

Total annual returns[edit]

Year Change in Index Total Annual Return Including Dividends Value of $1.00 Invested on 1970‑01‑01 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%
2013 29.60% 32.39%[27] $77.79 17.94% 7.40% 4.68% 9.22% 10.27%
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   10.40%            
Median 12.64% 15.79%   13.96% 13.83% 12.22% 12.71% 12.98%

See also[edit]

References[edit]

  1. ^ a b "S&P 500 factsheet". Standard & Poor's. Retrieved January 20, 2013. 
  2. ^ a b "S&P 500 Overview". S&P/Dow Jones Indices LLC. Retrieved January 20, 2013. 
  3. ^ https://www.spice-indices.com/idpfiles/spice-assets/resources/public/documents/81745_multisharecgoogle2.pdf
  4. ^ http://us.spindices.com/idsenhancedfactsheet/file.pdf?calcFrequency=M&force_download=true&hostIdentifier=48190c8c-42c4-46af-8d1a-0cd5db894797&indexId=340
  5. ^ a b c d e f "S&P U.S. Indices Methodology". Standard & Poor's. Retrieved April 30, 2013. 
  6. ^ "Standard & Poor's 500 Index - S&P 500". Investopedia. Retrieved 11 June 2012. 
  7. ^ Edward Renshaw, The Stock Market, Oil Price Shocks, Economic Recessions and the Business Cycle With An Emphasis on Forecasting, December 2002
  8. ^ "Yahoo! Finance: ^GSPC". Yahoo!. 
  9. ^ "Google Finance: .INX". Google. 
  10. ^ "MarketWatch: $SPX". http://marketwatch.com/quotes/. Dow Jones Inc. 
  11. ^ Ultronic Systems Corp. Annual Report 1964
  12. ^ S&P 500 actual volatility at highest since 1929
  13. ^ Stocks Plunge, Leaving Dow Below 7600
  14. ^ Sommer, Jeff (2008-11-23). "A Friday Rally Can't Save the Week". The New York Times. 
  15. ^ Peter Mckay, Geoffrey Rogow and Rob Curran (March 26, 2009). "Stocks' Momentum Keeps Building". The Wall Street Journal. Retrieved 4 April 2013. 
  16. ^ S&P 500 Closes At All-Time High
  17. ^ Dow and S&P 500 close at new record highs
  18. ^ "S&P - Indices > Equity Indices - S&P 500 - Index Table". standardandpoors.com. 
  19. ^ "Description". standardandpoors.com. 
  20. ^ "Standard & Poor's Announces Changes to U.S. Investable Weight Factors and Final Float Transition Schedule". PRNewswire. 2005-03-09. Retrieved 2013-01-20. 
  21. ^ a b c "S&P Indices Index Mathematics Methodology". The McGraw-Hill Companies, Inc. Retrieved January 20, 2013. 
  22. ^ "How is the value of the S&P 500 calculated?". Retrieved January 20, 2013. 
  23. ^ "S&P Indices". 
  24. ^ "Investopedia Vanguard Profile". 
  25. ^ "S&P 500 ETFs". 
  26. ^ 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. 
  27. ^ . Morningstar http://quicktake.morningstar.com/index/IndexCharts.aspx?Symbol=SPX.  Missing or empty |title= (help)

External links[edit]