S and P 500

Financial Dictionary -> Investing -> S and P 500

Standard and Poor's 500 (known simply as S&P 500) is a sample collection of 500 value weighted widely held stocks, which are used to represent the entire stock market by performance. The common stocks tracked on the index are from the top large public companies, that either trade on the NASDAQ or New York Stock Exchange, usually within the top 500 of large capitalization stocks in the United States. They are picked because of their liquidity, market size and industry variety.

Along with the Dow Jones Industrial, the performance of the S&P 500 index is considered a very important figure for determining the stability of the economy as a whole, and is used by almost all economic forecasters, as well as being used by the Index of Leading Indicators, to help estimate the future of the economy. Because it is a representative snapshot of the market as a whole, many funds are designed to imitate its performance to remain stable and are measured in comparison. Many mutual funds, exchange traded funds and pension funds are created this way and are demonstrated with a graph in relation to the S&P index.

First created in 1957 using back data to help support it, the S&P 500 has become one of the top economic benchmarks. Today its structure doesn't differ much from the early days and the selection process, although based on the above factors, is still decided by a board of experts and isn't strictly rule assessed like the Russell 1000 and others.

Although there are various financial products based off S&P 500, it is impractical to buy in to the performance of index itself because that would mean purchasing all 500 stocks listed.

S&P do several other important indexes, including the S&P 600, which focuses on small cap companies.