Stock indexes are proxies for gauging the overall health of the economy in addition to determining the performance of the stock markets. The fluctuations in the value of securities and companies usually correspond to shifts in specific segments, industries, or markets.
Traditional stock market indexes benchmark the stock values based on share prices. This approach is inflexible and does not meet the demands of the 21st-century investment landscape and economies. Investors are increasingly looking for a stock index that accommodates the rapid changes across various industries. Standard & Poor’s 500 (S&P 500) is a composite stock index that tracks the market capitalization of 500 large publicly held companies selected on merit. The following are five facts about the S&P 500 that you need to know:
A revolving door with global appeal
The S&P 500 stock index list includes 500 publicly traded companies based on their market capitalization. During the 50th anniversary of the S&P 500 official formation, only 86 companies still held their position on the index. Over 400 companies included in the first original list had suffered different fates, including bankruptcy and acquisition. Others have also registered a remarkable decline in their valuation, leading to delisting from the S&P 500 index.Dividend aristocrats such as Coca-Cola and PepsiCo are index mainstays since its official launch. Therefore, it is safe to say the lifespan on the S&P 500 index list is relatively short and dynamic, reflecting the true nature of economies. Despite this short lifespan for stocks, S&P 500 index is a global index that appeals to publicly held large-cap companies beyond U.S. borders. A significant percentage of stocks on the S&P 500 originated overseas.
An index steeped in a rich history
Henry Poor originally conceived S&P 500 index in 1860. The financial analyst initially focused on railroad companies. The list was gradually expanded over the following years to include more stocks. Standard & Poor's was coined in 1941 following the merger of Standard Statistics Company and Poor’s publications. The new index was officially formed in 1957 and became S&P 500 as it began listing 500 high market capitalization publicly traded companies drawn from different industries.The current market value eligibility is set at a minimum of $4 billion. Other eligibility requirements include listing on the New York Stock Exchange and 250,000 traded shares per month for six straight months.
Technology has revolutionized S&P 500 index
The volume of shares traded in the S&P 500 has grown exponentially, with significant improvements recorded with the advent of computing technology. The index recorded just under six billion shares traded in the few years that followed the official launch in 1957.The emergence of the Internet at the beginning of the 20th century marked a new era of share trading. Online trading gave investors greater freedom as opposed to traditional brokers. S&P 500 index’s cumulative traded shares surpassed the 1 trillion mark by the end of the century. By 2012, S&P 500 had recorded over 10 trillion in cumulative shared traded. Such a remarkable achievement points to technology's integral role in shaping the frequency and volume of shares traded on the index.
S&P 500 is a broad index
S&P 500 stock index list a broad range of companies drawn from different industries. The top-performing constituents with prime stocks are drawn from information technology and communication services. The financials market ranks third, with real estate and materials occupying the last positions in the top ten list of sectors.The constituents offer investors multiple investment options and vehicles that cater to various preferences. For those seeking to invest for life after retirement, S&P 500 lists several investment options from the financial sector, including exchange-traded funds (ETFs) and bonds. The S&P 500 is also a relatively low-cost and easy investment option.
S&P 500 compares favourably with other indexes
S&P 500 compares favourably with other stock indexes in terms of constituent numbers and industry variation. NASDAQ primarily focuses on the information technology industry. S&P 500 lists companies drawn from the non-financial and financial sectors, unlike NASDAQ. The NASDAQ daily traded shares threshold is set at 100,000 while S&P caps the requirement at 250,000. The Dow uses prices in the weighting metric and lists mostly industry leaders.S&P 500 stock index offers a robust metric for gauging the consistency of the economic performance of the country. The index has a broad listing and a high threshold for weighting.