What is the S&P 500?
The Standard & Poor’s 500, the S&P 500, or just “the S&P”, is an American stockmarket index based on the market capitalisations of 500 large companies having common stock listed on the New York Stock Exchange or Nasdaq. The index is managed by S&P Dow Jones Indices.
In recent times, the S&P 500 has replaced the Dow Jones Industrial Average (DJIA) as the main index of the US economy. Part of this change is due to the vast difference in their listing; the S&P includes 500 companies, whereas the DJIA only 30. Hence, the S&P 500 gives a far more accurate representation of the economy and the business cycle.
A team of analysts and economists at Standard & Poor’s, named the S&P Index Committee, selects the 500 companies included in the S&P 500. These experts consider several factors when determining the 500 stocks that are included in the index, such as market size, liquidity and industry grouping.
The index represents around 70% of economically sensitive industries. The largest sector is technological, accounting for almost 18%, with Apple worth almost 5% – this skews the index significantly, and can give a false impression as to the state of the US economy. Financials, retail, media, travel stocks, industrials and oil and gas are further cyclical sectors.
Among the defensive segments, consumer goods and healthcare are at the top, followed by utilities, which comprise 3.9% of the index, and telecoms firms, worth 3.1%.
Category: Financial Glossary