The S&P 500 is a value weighted index of the prices of 500 large cap common stocks actively traded in the United States. The stocks included in the S&P 500 trade on either of the two largest American stock markets, the New York Stock Exchange and NASDAQ. The components of the S&P 500 are selected by committee on a quarterly basis.
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After the Dow Jones Industrial Average, the S&P 500 is the most widely followed index of large-cap American stocks. It is considered a bellwether for the American economy, and is included in the Index of Leading Indicators.
Some mutual funds, exchange traded funds, and other managed funds, such as pension funds, are designed so as to mimic the performance of the S&P 500 index.
What Is the S&P 500?
The index is the best known of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. S&P 500 refers not only to the index, but also to the 500 companies whose common stock is included in the index.
„S&P 500“ is often abbreviated as SPX or INX, and may be prefixed with a caret (^) or with a dollar sign ($). The S&P 500 index forms part of the broader S&P 1500 and S&P Global 1200 stock market indices.
Rebalancing of S&P 500 happens quarterly in March, June, September, and December. At each quarterly rebalancing, certain securities that have undergone a change in the past quarter are eligible to be added to the index. These securities include: Initial Public Offerings (IPOs), new listings on eligible exchanges, issues that moved from Pink Sheets or Bulletin Board, issues that emerged from Bankruptcy Status, and companies whose domicile has changed to the U.S.
The S&P 500 is closely watched by investors and market analysts around the world, and its performance is often used as a barometer for the overall health of the U.S. economy.
Top 10 SPX Stocks by Index Weight as of September 28, 2020
- Apple Inc. | AAPL| Information Technology
- Microsoft Corp| MSFT| Information Technology
- Amazon.com Inc| AMZN| Consumer Discretionary
- Facebook Inc A| FB| Communication Services
- Alphabet Inc A| GOOGL| Communication Services
- Alphabet Inc C| GOOG| Communication Services
- Berkshire Hathaway B| BRK.B| Financials
- Johnson & Johnson| JNJ| Health Care
- Visa Inc A| V| Information Technology
- Procter & Gamble| PG| Consumer Staples
Examples of companies included in S&P 500: CME Group Inc., Intuitive Surgical Inc., Mastercard Inc., AutoZone Inc., Apple Inc. , EOG Resources, IBM International Business Machines , Broadridge Financial Solutions, HollyFrontier Corp, Twitter, Inc., Evergy, SVB Financial
It is important to note that Tesla is not considered a part of S&P 500.
European alternative to S&P500 is named S&P Europe 350.
How to invest in S&P 500
There are various ETFs that follow S&P 500.
- SPDR S&P 500 ETF Trust (SPY)
- iShares Core S&P 500 ETF (IVV)
- Vanguard S&P 500 ETF (VOO)
- Portfolio Plus S&P 500 ETF (PPLC)
- Schwab U.S. Large Cap ETF (SCHX)
- iShares S&P 500 Growth ETF (IVW)
The S&P 500 has a long history of strong performance, with an average annual return of around 9% since its inception.
Criticism of S&P 500
Like any financial index, the S&P 500 has faced criticism from some quarters. Here are a few examples of criticism of the S&P 500:
The S&P 500 is often criticized for being too heavily weighted towards large, well-established companies, and for not adequately representing smaller, emerging firms. This can make it more difficult for newer companies to gain exposure and recognition within the index.
The S&P 500 is a market capitalization-weighted index, which means that the companies with the largest market capitalizations have the greatest impact on the index. This can lead to a concentration of influence among a small number of large companies, and may not accurately reflect the overall performance of the market.
The S&P 500 is reviewed and rebalanced quarterly, but some critics argue that this is not frequent enough, and that the index may not accurately reflect the current market conditions.
The S&P 500 is based on the performance of publicly traded companies, and as such, it does not take into account the performance of private companies or companies that are not listed on a public exchange. This means that the index may not accurately reflect the performance of the overall economy.
The S&P 500 is a U.S. stock market index, and as such, it does not take into account the performance of stock markets in other countries. This can limit its usefulness as a global benchmark for the performance of the stock market.