What is the S&P 500?
How important is the S&P 500?
The S&P 500 Index is a stock market index that consists of the 505 stocks of the featured U.S. publicly traded companies with the largest capitalization. The index is managed by the rating financial company, Standard & Poor’s.
The index was created on March 4, 1957, by the Standard & Poor’s company rating community which was created as a result of Standard Statistics Company and Poor’s Publishing company consolidation. The Standard Statistics Company issued its first stock market index in 1923 that included 233 companies. After the companies’ consolidation, the number of listed companies in the stock index increased to 416. Then, it rose up to 500 items and threw off the Dow Jones 30 Index as a more representative index of the U.S. stock market. In fact, the index includes more securities — 505 items in comparison to 30 items of the Dow Jones Index. Furthermore, the value of the S&P 500 Index takes into account the capitalization of the companies that make it up while the Dow Jones Index value is built up only on the prices of the stock market.
A change of the dollar rate of one S&P 500 share of a large company would have a greater impact than a share of a smaller company. That’s why the S&P 500 Index is the best indicator of how U.S. stocks, in general, are performing.
There are two requirements the companies have to comply with to be listed on the S&P 500 Index.
1. The company market capitalization should be no less than 5 billion.
2. The minimum traded volume is 250,000 shares per month.
The full list of shares can be seen here.
The S&P 500 Index has derived instruments. Chicago Mercantile Exchange has been trading settlement futures since 1982 the underlying asset of which is the S&P 500 Index. The stock size of the contract is $250 * S&P 500 (ticker SP). Also, there are mini-futures traded on the exchange in the size of $50 * S&P 500 (ticker ES).
Currently, the S&P 500 Index is traded at $3 449,07, 13:55 UTC+0 on Wednesday, August 26, 2020.
Credit Suisse’s Chief US Equity Strategist, Jonathan Golub expects the S&P 500 earnings per share should decrease to $125 from $165 last year. The earnings won’t probably fully recover until 2022. Still, hope burns bright that EPS would increase to $155 from $150 in 2021 and to $170 from $165 in 2022 based on the rapid early pace of the economic recovery.
