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Definition
The S&P 500 is a stock market index consisting of 500 different large-cap companies from the United States. All of the companies trade on the New York Stock Exchange or NASDAQ. The index is market-value weighted, which means the companies with larger market capitalizations have more influence on the index. The companies must meet the following criteria to be included in the index, among others:
- Must be a U.S company
- Must have at least a $5 billion market cap
- Must have at least half of the companies shares publicly available
- Must be financially viable
- The stock must be reasonably priced to ensure adequate liquidity
The S&P 500 is the most popular stock market index among the investor crowd. There are many mutual funds that attempt to mimic the composition of the S&P 500. The performance of most mutual funds, and other investment equities as well, are compared against the S&P 500 to determine their performance. It is the bellwether measurement of the American market.
Problems and Criticisms
The S&P 500 is considered one of the more "rock solid" investment indices. It is certainly more reliable than the Dow since it looks at 470 more companies. Still, it is not perfect. The two biggest weaknesses of the index is that it only features US companies and that it only included large companies that are traded frequently. The index does not take into account the market performance of smaller companies, or huge companies that are rarely traded such as Berkshire
The S&P 500 Today
Because of the tech bubble bust in the early part of the decade, the S&P 500 took big hits in 2000, 2001 and 2002. Growth in the market resumed in 2003. On October 9th, 2007, the index closed with its highest ever value, $1,565.15. The bad times would soon return. In 2008, the index lost 38.49% of its value. This has taken a major hit in the investment portfolios of many average Americans. Many, many people have their 401K money invested in S&P 500 mutual funds. The index is currently valued around $860.
Problems and Criticisms
The S&P 500 is considered one of the more "rock solid" investment indices. It is certainly more reliable than the Dow since it looks at 470 more companies. Still, it is not perfect. The two biggest weaknesses of the index is that it only features US companies and that it only included large companies that are traded frequently. The index does not take into account the market performance of smaller companies, or huge companies that are rarely traded such as Berkshire
Hathaway.
The S&P 500 Today
Because of the tech bubble bust in the early part of the decade, the S&P 500 took big hits in 2000, 2001 and 2002. Growth in the market resumed in 2003. On October 9th, 2007, the index closed with its highest ever value, $1,565.15. The bad times would soon return. In 2008, the index lost 38.49% of its value. This has taken a major hit in the investment portfolios of many average Americans. Many, many people have their 401K money invested in S&P 500 mutual funds. The index is currently valued around $860.
Further Reading
Previous Entries in this Series: GDP, Unemployment Rate, Poverty Rate, Inflation Rate, Gini Index, The Dow Jones Industrial Average
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