If you are a fan of news programs, there is a huge chance that you have already encountered the term “S&P” (Standard & Poor). You might have also noticed its inclusion in the measurement of the nation’s economic performance but you do not have any idea about it. Now, you might be curious and you might want to know something about this index.
The Standard & Poor’s 500 refer to the weighted market value index of the 500 stocks which are traded on the New York Stock Exchange (NYSE), NASDAQ National Market System and the American Stock Exchange (AMEX). These weights make the influence of each company on Index performance perfectly equal to the market value of the company itself. Because of this feature, the S & P’s 500 Index has been used as a benchmark for gauging the performance of portfolios.
Standard & Poor’s 500 Index was introduced on March 4, 1957 with the aim to find an excellent way to measure how the U.S. stock market performs. S & P has also introduced a new methodology of evaluating stock performance to the financial world in 1923, and this was called “base-weighted” aggregative technique.
In 1928, S & P decided to promulgate its market indicator information more often because they realized that it was not that easy to implement. For a change, S & P made a more manageable subset of stocks which was published on an hourly and daily basis. It was made up of 50 industrial, 20 railroad and 20 utility stocks and was called the “S & P 90 Stock Composite index”.
In the year 1976, the configuration of the S & P 500 Index was altered as a response to the advancing technology and also to the development of capital markets. American Stock Exchange and Over-the-counter (OTC) have been included in the index for the first time in many years.
The mergers which happened in the 1980s greatly affected the shifts in market-value representation of the different sectors within the stock market. A flexible policy was adopted by the S & P to let several companies “float” and to make the 500 a good indicator.
Are you wondering how the companies are selected to be included in S & P’s 500 Index? They are chosen not because of their market value, size, profits or sales but on the basis of having the important industries in the U.S. to be well represented.