What is the S&P 500?

S&P 500 is an index containing the stocks of 500 Large-Cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. S&P 500 is used in reference not only to the index but also to the 500 actual companies whose stocks are included in the index.

The S&P 500 index forms part of the broader S&P 1500 and S&P Global 1200 stock market indices.

All of the stocks in the index are those of large publicly held companies and trade on major US stock exchanges such as the New York Stock Exchange and Nasdaq. After the Dow Jones Industrial Average, the S&P 500 is the most widely watched index of large-cap US stocks. It is considered to be a bellwether for the US economy and is a component of the Index of Leading Indicators.

Many index funds and exchange-traded funds track the performance of the S&P 500 by holding the same stocks as the index, in the same proportions, and thus attempting to match its performance (before fees and expenses). Partly because of this, a company which has its stock added to the list may see a boost in its stock price as the managers of the mutual funds must purchase that company's stock in order to match the funds' composition to that of the S&P 500 index.

In stock and mutual fund performance charts, the S&P 500 index is often used as a baseline for comparison. The chart will show the S&P 500 index, with the performance of the target stock or fund overlaid.

History

Prior to 1957, the primary S&P stock market index consisted of 90 companies, known as the S&P 90, and was published on a daily basis. A broader index of 423 companies was also published weekly. On March 4, 1957, a broad, real-time stock market index, the S&P 500 was introduced. This introduction was made possible by advancements in the computer industry which allowed the index to be calculated and disseminated in real time.

The S&P 500 is used widely as an indicator of the broader market, as it includes both "growth" stocks (which inflated and then deflated in the dot-com bubble and bust) and generally less volatile "value" stocks; it also includes stocks from both the NASDAQ stock market and the NYSE.
The index, near the height of the bubble, reached an all-time closing high of 1,527.46, and intra-day high of 1,553.11, on March 24, 2000. After that, the index eventually lost approximately 50% of its value, spiking below 800 in July 2002 and reaching a bear market low of 768.63 intra-day on October 10, 2002.
Since then, the US stock markets have gradually recovered. However, during the week of October 2, 2006, when the DJIA set new record highs for the first time in nearly seven years, the S&P 500 remained below its all-time closing high. As of late 2006, the S&P 500 remains below its all-time high, although it established a monthly close above 1400 points for the first time in over six years on November 30, 2006.

Selection

The components of the S&P 500 are selected by committee. This is similar to the Dow 30, but different from others such as the Russell 1000, which are strictly rules-based.

Although the index includes many large companies in the US, it is not simply a list of the 500 biggest companies, and includes a handful (11 as of September 19, 2006) that are incorporated outside of the US and are therefore technically not US companies.
The companies are carefully selected to ensure that they are representative of various industries in the US economy. In addition, companies that do not trade publicly (such as those that are privately or mutually held) and stocks that do not have sufficient liquidity are not in the index.
By contrast, the Fortune 500 attempts to list the 500 largest companies in the United States by gross revenue, regardless of whether their stocks trade or their liquidity, without adjustment for industry representation, and excluding companies incorporated outside the US.

See a list o S&P 500 companies