The S&P 500 index includes the stocks of 500 corporations, most of them American, states IronFX. The index is the most famous of those managed by Standard and Poor’s, a division of McGraw-Hill. S&P 500 is attributed not only to the index but to the 500 corporations therein.
All of the shares in the index belong to large public companies traded on leading US stock markets such as the NYSE and the NASDAQ. After the Dow Jones Index, S&P 500 is the most widely followed index of large American stocks, explains IronFX. The index is considered a good indicator for the American economy and is a component of the Index of Leading Indicators.
Before 1957, most S&P index shares were based on 90 companies, and the index was published daily. A broader index of 423 companies was published weekly. On March 4th, 1957, a broader, real-time index, the S&P 500, was introduced to the public. This introduction followed advances in the industry’s computer systems, which allowed the index to calculate and disperse in real-time, states IronFX.
The S&P 500 serves a broader use as a wide market indicator, since it includes “growth” shares (which inflate and then reduce financial cycles in the tech share bubble) and less “evaporable” shares; the index includes NASDAQ and NYSE shares.
The index’s components are chosen by a committee. The index must include a certain number of non-American companies, explains IronFX. This group includes former American companies that today are incorporated outside of the US, were previously American, and allowed to remain included in the index, as well as companies that were not incorporated in the US.
The committee picks the companies in the index in a manner that represents the various industries in the US economy. Additionally, companies not traded publicly (those that are publicly owned or funds) and illiquid shares are not added to the index.
The S&P 500 is characterised by high volatility and risk (as are most stock indexes on the bourse). The fastest and sharpest plummet occurred in 1987, on a day known as “Black Monday”, explains IronFX.