Standard and Poor's 500 (S&P 500) - Explained
What is the S&P 500?
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Table of ContentsWhat is the Standard & Poor's S&P 500?How Does the S&P 500 Work?
What is the Standard & Poor's S&P 500?
Standard & Poors is a globally leading group that provides credible and independent credit ratings in about 26 countries of the world. S&P was founded in 1860, it is reputable for providing top-notch research and high-quality ratings. It is regarded as an index provider and a source of market intelligence in many countries where its offices are located. Standard & Poors has many divisions otherwise called innovative platforms, they are S&P Dow Jones Indices, S&P Global Platts, S&P Global Ratings, as well as S&P Global Market Intelligence. S&Ps innovative platforms have achieved great feats in 26 countries through value creation. As a market capitalization-weighted index, the Standard & Poors 500 index provide a gauge for U.S publicly traded companies, S&P 500 index was launched in March 1957, is is called S&P 500 index because it contains 500 of the largest stocks in US. Since the time it was launched, S&P 500 index has been a standard for weighing the overall health of stock market in the United States. S&P 500 contains stocks that trade on the New York Exchange and Nasdaq.
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How Does the S&P 500 Work?
Basically, S&P provides independent credit ratings across different market sectors, it offers short-term and long-term credit ratings to different sectors. Its credit rating coverage is not limited to private company debt but also public or government debts. Aside from S&P 500, there are also some great indexes by S&P Global which are also benchmark for determining health in different sectors of market. These indexes also have great influence in weighing the indexes of market capitalizations. These indices include the S&P MidCap 400, S&P SmallCap 600, the S&P 900 and the S&P Composite 1500 . S&P was purchased by McGraw Hill Financial in 1966 and 2016, this resulted in the rebranding of S&P to S&P global and its expansion into over 1,400 credit analysts and over 1.2 million credit ratings. The origin of Standard & Poor can be traced back to 1923, with 233 companies as its stock market indicator or index. The company first started as Standard Statistics Co. but when it was merged with Poors publishing in 1941, it became Standard & Poor's. In 1941, Paul Talbot Babson purchased Poor's Publishing and merged it with Standard Statistics to become Standard & Poor's. After this merging, its stock index grew to a number of 416 companies and the number kept increasing as the years go by. However in diverse publications, the origin of Standard & Poors is often linked to the year 1860. The S&P 500 index is also regarded as Standard & Poor's 500 Index. It is a trusted index provider that uses a market capitalization weighting method to give independent credit ratings of companies. S&P gives stock market of the 500 biggest publicly traded companies in the United States. The S&P 500 index is regarded as the benchmark for gauging large-cap U.S equities. S&P calculates market capitalization by multiplying the current stock price by outstanding shares, aside from S&P 500, there are other stock market that serve as benchmark of small-cap U.S equities, they are Dow 30 and the Russell 2000 Index. Due to the fact that S&P 500 gives market-capitalization-weighted index of the 500 largest U.S companies, it has become significant for publicly traded corporations in the United States. Unlike other index providers that focus on small-cap index, S&P 500 has its attention on large-cap index in U.S. equities. S&P also provide float-weighted index, this is the index gotten when market capitalizations are calculated based on the amount of shares available for public trading. Dow Jones industrial Average popularly referred to as Dow 30 is also an index provider but it focuses on small-cap industries unlike S&P 500 that has its attention on gauging large-cap U.S. equities. Hence, the Dow Jones is associated with retail investors gauge of the U.S stock while S&P 500 provides institutional investor's gauge of U.S equities. While the Dow Jones Industrial Average provides a price-weighted index, S&P 500 gives a market capitalization-weighting index. Market capitalization gives higher allocation to companies with the largest market capitalizations while price-weighted index gives companies with higher stock prices a higher index weighting. Russell index just like the Standard & Poors company has many divisions, but the company setting is quite different from the S&Ps. The Russell index company also provides financial market intelligence in form of credit rating system to publicly traded corporations in the United States. Russell indexes differ from the Standard & Poors Company in that the modes it employed in selecting stocks or constituent companies is different from what S&P uses. S&P is made up of the 500 largest publicly traded corporations in the U.S. and these corporations are selected based on the decision of a committee. In Russell indexes however, stocks or companies are chosen using a formula. The Standard & Poor 500 popularly known as S&P 500 is not the only index of the S&P global company, there are many other indices. The S&P Global company is made up of 1,200 indices, the most popular ones are S&P MidCap 400 and S&P SmallCap 600. Both of them focus on or represent the U.S. market's small-cap sector, they provide credit ratings for small-cap stock market. Other popular members of the S&P Global company include the S&P 500 which focuses on the large-cap sector, and S&P 1500 which is a combination of all-capitalization index.talization index.