A linear chart of the S&P 500 using closing values from January 3, 1950 to February 19, 2016
A logarithmic chart of the S&P 500 using daily closing values from January 3, 1950 to February 19, 2016.
A daily volume chart of the S&P 500 from January 3, 1950 to February 19, 2016
Logarithmic graphs of S&P 500 index with and without inflation and with best fit lines
The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices, and many consider it to be one of the best representations of the U.S. stock market. The average annual total return of the index, including dividends, since inception in 1926 has been 9.8%; however, there were several years where the index declined over 30%. The index has posted annual increases 70% of the time.
Although the index includes only companies listed in the United States, companies not originating from the United States might be included in the future. It already includes many multi-national companies; companies in the index derive on average only 71% of their revenue in the United States.
The index is associated with many ticker symbols, including: ^GSPC, INX, and $SPX, depending on market or website. The index value is updated every 15 seconds, or 1,559 times per trading day, with price updates disseminated by Reuters.
In the derivatives market, the Chicago Mercantile Exchange (CME) offers futures contracts that track the index and trade on the exchange floor in an open outcry auction, or on CME's Globex platform, and are the exchange's most popular product. Ticker symbols are /SP for the full-sized contract and /ES for the E-mini S&P contract that is one-fifth the size of /SP. In May 2019, the CME started trading a Micro E-mini futures contract that is one-tenth the size of the S&P E-mini contract, i.e. 1/50 the size of the full-sized (SP) contract. The Micro E-mini S&P 500 Index contract's ticker symbol is /MES.
In 1860, Henry Varnum Poor formed Poor's Publishing, which published an investor's guide to the railroad industry.
In 1923, Standard Statistics Company (founded in 1906 as the Standard Statistics Bureau) began rating mortgage bonds and developed its first stock market index consisting of the stocks of 233 U.S. companies, computed weekly.
In 1926, it developed a 90-stock index, computed daily.
On March 4, 1957, the index was expanded to its current 500 companies and was renamed the S&P 500.
In 1962, Ultronic Systems became the compiler of the S&P indices including the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index.
The components of the S&P 500 are selected by a committee. This is similar to the Dow Jones Industrial Average, but different from others such as the Russell 1000, which are strictly rule-based. When considering the eligibility of a new addition, the committee assesses the company's merit using eight primary criteria: market capitalization, liquidity, domicile, public float, sector classification, financial viability, and length of time publicly traded and stock exchange. Each of these primary criteria have specific requirements that must be met. For example, in order to be added to the index, a company must satisfy the following liquidity-based size requirements:
Market capitalization must be greater than or equal to US$8.2 billion
Annual dollar value traded to float-adjusted market capitalization is greater than 1.0
Minimum monthly trading volume of 250,000 shares in each of the six months leading up to the evaluation date
The index includes non-U.S. companies, both formerly U.S.-incorporated companies that have completed corporate inversions outside the United States, as well as firms that have never been incorporated in the United States.
A stock may rise in value when it is added to the index since index funds must purchase that company's stock in order to continue tracking the S&P 500 index.
The index is a capitalization-weighted index;:150 that is, movements in the prices of stocks with higher market capitalizations (the share price times the number of shares outstanding) have a greater impact on the value of the index than do companies with smaller market capitalizations.
However, to calculate the market capitalization of each company and therefore value of the index, Standard & Poor's uses only the number of shares available for public trading ("public float"), and excludes shares held by insiders or controlling shareholders that are not publicly traded.
The transition to a public float-adjusted capitalization-weighting was made in two steps, the first on March 18, 2005 and the second on September 16, 2005.
To keep the S&P 500 Index consistent over time, it is adjusted to capture corporate actions which affect market capitalization, such as additional share issuance, dividends and restructuring events such as mergers or spin-offs. To remain indicative of the largest public companies in the United States, the constituent stocks are changed from time to time.
To prevent the value of the index from changing merely as a result of corporate financial actions, all such actions affecting the market value of the Index require a divisor adjustment. Also, when a company is dropped and replaced by another with a different market capitalization, the divisor needs to be adjusted in such a way that the value of the S&P 500 Index remains constant. All divisor adjustments are made after the close of trading and after the calculation of the closing value of the S&P 500 Index.:290
There are many corporate actions that require the divisor to be adjusted, as follows:
Type of Action
Stock split (e.g., 2×1)
Special cash dividend
To calculate the value of the S&P 500 Index, the sum of the adjusted market capitalization of all 500 stocks is divided by a factor, usually referred to as the Divisor. For example, if the total adjusted market cap of the 500 component stocks is US$13 trillion and the Divisor is set at 8.933 billion, then the S&P 500 Index value would be 1,455.28. Although the adjusted market capitalization of the entire index can be accessed from Standard & Poor's website, the Divisor is considered to be proprietary to the firm. However, the Divisor's value is approximately 8.9 billion.
The formula to calculate the S&P 500 Index value is::225–226
where P is the price of each stock in the index and Q is the number of shares publicly available for each stock.
The Divisor is adjusted in the case of stock issuance, spin-offs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the Index.
On August 12, 1982, the index closed at 102.42.
On March 24, 2000, the index reached an intraday high of 1,552.87, at the peak of the dot-com bubble; this high was not exceeded until 7 years later. On October 10, 2002, during the stock market downturn of 2002, the index fell to 768.83, a decline of approximately 50% from its high in March 2000.
Financial crisis of 2007–2008
On May 30, 2007, the S&P 500 closed at 1,530.23, setting its first all-time closing high in more than 7 years. The index achieved a new all-time intraday high on October 11, 2007, at 1,576.09, following a record close of 1,565.15 on October 9, just before the onset of the financial crisis of 2007–2008. The index ended 2007 at 1,468.36, just below its December 31, 1999 close. Less than a month later, it dropped to 1,400, and did not reach that level again for 5 years.
On October 11, 2007, S&P index set a milestone with its all-time intraday high of 1,576.09.
On November 20, 2008, the index closed at 752.44, its lowest since early 1997.
The index ended 2008 at 903.25, for a yearly loss of 38.5%. The market continued to decline in early 2009. The index reached a nearly 13-year low, closing at 676.53, on March 9, 2009. The entire drop from high in Oct 2007 to low in Mar 2009 was 57.7%, the largest since WWII.
The close on December 31, 2009 was 1,115.10, making it the second-best year of the decade.
On April 14, 2010, the index broke 1,200 closing at 1,210.65, but by July 2, 2010, it had fallen to 1022.58.
On April 29, 2011, the index closed at 1,363.61. However, after the August 2011 stock markets fall, it briefly broke below 1,100 in October 2011, with the VIX reaching 40.
Gains continued in 2012 despite significant volatility amid electoral and fiscal uncertainty, and the December 31, 2012 close of the S&P 500 following round 3 of quantitative easing was its third-highest ever, at 1,426.22 points.
New highs in 2013 and beyond
On March 28, 2013, the S&P surpassed its closing high level of 1,565.15, recovering all its losses from the financial crisis. On April 10, 2013, it also closed above the intraday high from 2007.
On March 2, 2015, the S&P closed at a new all-time inflation-adjusted closing high, and achieved a new all-time inflation-adjusted intraday high in September 2016, both of which were set in 2000.
A period of over a year with no new record highs ended on July 11, 2016, closing at 2,137.16.
In June 2017, the index posted the largest weekly rise since the previous presidential election in November 2016.
After strong performance in 2017, the S&P 500 peaked in February 2018 at 2,836.
The "S&P 500" generally quoted is a price return index; there are also "total return" and "net total return" versions of the index. These versions differ in how dividends are accounted for. The price return version does not account for dividends; it captures only the changes in the prices of the index components. The total return version reflects the effects of dividend reinvestment. Finally, the net total return version reflects the effects of dividend reinvestment after the deduction of withholding tax.
The CAGR (compound annual growth rate, annualized return) is the best average rate to summarize investment returns over several years. In contrast with the median return or the mean return, the CAGR is a measurement of the actual return achieved over the number of years examined.
Calculation used for CAGR:
The total rate of return (including dividends) compounded annually from 1970 through 2019 is 10.60%. The rate of return (without dividends, or just on the index price itself) through 2019 is 7.37%.
Using a charting method (see chart above: Logarithmic graphs of S&P 500 index with and without inflation and with best fit lines), the S&P 500 index compound annual increase from 1950 to mid-2019 is a consistent 7.5%.